Professional Documents
Culture Documents
CUSTOMER CENTRICITY
02 At A Glance
03 Vision, Mission And Values
05 Financial Highlights
06 Joint Message
09 Review Of Operations
16 Financial Review
18 Key Operating Subsidiary
19 Board Of Directors
22 Sharia Supervisory Board
23 Executive Management
27 Corporate Governance
44 Funds Under Management
89 Public Disclosures
AT A GLANCE
Our Vision
A trusted leading Islamic financial institution offering a comprehensive
range of financial solutions and contributing to social development.
Our Mission
To be the preferred Bank for our customers, counterparties and strategic
partners by creating value through innovation and customer service.
Our Values
• Comply with Islamic Sharia principles;
• Honesty, integrity and objectivity in all our relationships;
• Market and customer focused;
• Continuous improvement, creativity, innovation and willingness to bring
about changes; and
• Active role in the community.
04 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 05
FINANCIAL HIGHLIGHTS
2017
JOINT MESSAGE
Dear Shareholders,
We are pleased to announce that Ithmaar Bank, in its first full year of The Bank’s continued profitability is powerful testimony to the Bank’s
operations following the successful implementation of the new group growing success as an Islamic retail bank, and the remarkable 2017
structure in January 2017, reported profits throughout the period. achievements set the stage for continuous growth. In fact, the Bank’s
financial performance is only a part of the remarkable 2017 story, with
As a result, Ithmaar Bank concluded 2017 by reporting a net profit much of the year being spent on preparing for a better, more efficient and
of BHD6.24 million for the period ended 31 December 2017. The net more customer-centric future.
profit attributable to equity holders of the Bank for the period was
BHD1.58 million. In 2017, the Bank undertook several initiatives to enhance customer
experience – including a major project of upgrading its core banking system
The Bank’s financial performance for the period ended 31 December and its eBanking offering, as well as upgrading its Information Technology
2017 underscores the fact that plans to turn Ithmaar Group around by (IT) infrastructure and systems to support business growth and improve
significantly transforming its operations are now well underway, and are operational efficiency. The project, which is expected to be completed
delivering stable, consistent results. These plans, which followed strategic by the end of the second quarter of 2018, has already brought about
decisions taken in 2016, included the conversion of the former Ithmaar transformational change as employees from across the Bank work together
Bank B.S.C into Ithmaar Holding B.S.C., which is licensed and regulated as a with unprecedented levels of interaction. When completed, the upgrade
Category 1 Investment Firm by the Central Bank of Bahrain (CBB). Following will provide a strong foundation to support future business growth with the
the conversion, Ithmaar Bank is now a wholly-owned subsidiary of Ithmaar flexibility of quickly launching new products and services. The Bank also
Holding which is listed on the Bahrain Bourse, Boursa Kuwait and Dubai worked with international consultants to design an aggressive three-year
Financial Market, and traded under the ticker ITHMR. digital strategy.
Since the full implementation of the new group structure on 2 January Throughout the year, the Bank also remained focused on realising its
2017, Ithmaar Bank focused on its core retail banking business, and the commitment to becoming one of the region’s premier Islamic retail
results immediately speak for themselves. banks by growing ever closer to our customers and by playing a real and
During the period, Ithmaar Bank recorded an operating income of BHD89.2 meaningful role in the community. This focus has not gone unnoticed
million. The Bank recorded a total income before provisions for impairment and, in 2017, the Bank earned local, regional and international praise and
and overseas taxation for the period ended 31 December 2017, of BHD19.0 recognition both for its success as an Islamic retail bank and, perhaps more
million. importantly, for its role in, and support for, the community.
The 2017 financial results also show that the Bank’s total assets grew by Ithmaar Bank’s financial results for 2017 reflect the tremendous
4.4 percent over the last nine months of the year to stand at BHD3.24 achievements made during the year, and are a result of the commitment,
billion as at 31 December 2017, up from BHD3.11 billion as at 31 March dedication and expertise of our people as well as the confidence of our
2017, the first reviewed financials released for Ithmaar Bank after the customers in the Bank.
reorganization. Murabaha and other financing grew by 5.3 percent during We take this opportunity, as always, to thank each one of Ithmaar Bank’s
the same period to stand at BHD2.08 billion as at 31 December 2017, employees for their truly valuable contributions as well as the members of
up from BHD1.97 billion as at 31 March 2017. Equity of unrestricted the Board of Directors and the Sharia Supervisory Board for their continued
investment accountholders grew by 6.5 percent during the same period to support. We take this opportunity, also, to thank the Bank’s customers,
stand at BHD1.06 billion as at 31 December 2017, up from BHD1.00 billion investors and all other stakeholders for their confidence and, in particular,
as at 31 March 2017, and customer current accounts grew by 12.2 percent the Central Bank of Bahrain and the Ministry of Industry, Commerce and
during the same period to stand at BHD676.9 million as at 31 December Tourism for their continued guidance and support.
2017, up from BHD603.2 million as at 31 March 2017.
REVIEW OF OPERATIONS
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 09
REVIEW OF OPERATIONS
Strategy and focus stronger demand in East Asia. Confidence and economic sentiment
Ithmaar Bank is committed to becoming one of the region’s premier indicators have also generally strengthened, especially in developed
Islamic retail banks. economies. Investment conditions have improved, amid stable financial
markets, strong credit growth, and a more solid macroeconomic
To do so, the Bank focuses on continuously enhancing its products and outlook.
services, while growing closer to customers by listening to their needs
and working to meet their demands and exceed their expectations. Bahrain
The Bahraini economy has gained momentum, with the annual pace
Ithmaar Bank’s customer-centric approach drives the Bank’s immediate of growth in the non-oil sector reaching 4.8% in the first nine months
and long-term strategy. of 2017. The performance of the non-oil private sector also meant
that overall economic growth in the Kingdom reached an annual pace
New group structure delivers results
of 3.6% for the first three quarters of 2017 – improving on the 3.2%
Following the full implementation of the new group structure in pace of growth posted during 2016 as a whole and making Bahrain the
January 2017, Ithmaar Bank focused exclusively on its core retail fastest growing economy in the Gulf Cooperation Council (GCC) region.
banking business.
The Bahrain Economic Development Board (EDB) expects this positive
This clear focus has contributed to pronounced growth both at Ithmaar dynamic growth to continue into 2018 as the regional environment
Bank’s Islamic retail banking operations in Bahrain, and at Faysal Bank becomes more supportive of growth and as the diversified economy
Limited (FBL), its retail banking subsidiary in Pakistan. continues to expand.
Economic outlook In 2017, Bahrain implemented key pillars of the regulatory framework
The last decade has been punctuated by a series of broad-based for FinTech, including the launch of a regulatory sandbox which has
economic crises and negative shocks, starting with the global financial already accepted its first six entrants. Bahrain also launched the first
crisis of 2008–2009, followed by the European sovereign debt crisis dedicated FinTech hub and corporate incubator in the Middle East and
of 2010–2012 and the global commodity price realignments of 2014– Africa region in February 2018. The Bahrain FinTech Bay will collaborate
2016. As these crises and the persistent headwinds that accompanied closely with the Central Bank of Bahrain, notably its new, dedicated
them subside, the world economy has strengthened, offering greater FinTech and Innovation Unit, and the Bahrain EDB.
scope to reorient policy towards longer-term issues that hold back
progress along the economic, social and environmental dimensions of The Gulf Cooperation Council (GCC) and MENA Region
sustainable development. The GCC region’s economy is expected to grow near 2.5 percent in
2018. Stable energy prices will underpin this growth, with the price for
In 2017, global economic growth is estimated to have reached 3.0 per Brent crude oil fluctuating in a tight range of US$ 50-60 per barrel.
cent, a significant acceleration compared to growth of just 2.4 per cent
in 2016, and the highest rate of global growth recorded since 2011. Liquidity in the MENA region has always been closely associated with
Labour market indicators continue to improve in a broad spectrum of movement in oil prices. Low oil price environment is putting pressure
countries, and roughly two-thirds of countries worldwide experienced on government revenues, while spending continues to be aligned with
stronger growth in 2017 than in the previous year. At the global level, the long term vision of the regional governments. The sector remained
growth is expected to remain steady at 3.0 per cent in 2018 and 2019. resilient until 2015, but government decisions to draw down deposits
and issue local denominated notes to fund deficits has drained out
World industrial production has also accelerated, in tandem with liquidity from the financial system.
a recovery in global trade that has been predominantly driven by
Pakistan Later in the year, Ithmaar Bank also introduced Bahrain’s first ever
Pakistan’s economic growth is on track to achieve its highest level contactless credit card with the launch of its World Credit Card with
in the last eleven years. Average headline inflation remains within Mastercard. The World Card offers the Bank’s premier customers
the forecast range of State Bank of Pakistan, but core inflation has enhanced privileges, including unlimited access to more than 900
continued to increase. The fiscal deficit for the year 2018 is expected airport lounges in more than 450 cities across more than 135 countries
to fall close to last year’s 2.5 percent. There has been visible worldwide.
improvement in export growth and remittances are marginally higher.
During the year, Ithmaar Bank fully completed the transition to
However, largely due to a high level of imports the current account
electronic credit statements. The e-statements, which are securely
deficit remains under pressure. The exchange rate adjustment in
delivered directly to customer email addresses, help improve
December 2017 is expected to help ease the pressure on the external
privacy and reduce the risks of fraud while also helping protect the
front. Meanwhile, prospects for GDP growth remain strong. Indicators
environment.
suggest that the economy is well poised to achieve the target growth
of 6 percent for financial year 2018. From the demand side, rising Ithmaar Bank also launched a special promotional campaign in 2017
income levels of consumers are fuelling retail sales and commercial offering customers who applied for personal financing the chance to
activities. Businesses, meanwhile, are in the middle of an expansionary win a prize where their alternate instalments are paid by the Bank for
phase, with international investors’ attention boosting the level a full year. The Bank also renewed a joint promotion with Gulf Air that
of competition and quality in the domestic market. The evidence grants its cardholders discounted prices for tickets purchased on gulfair.
of this can be found in sectors such as cement, steel, automobile, com.
and electronics, where substantial capacity expansions are already
underway. In 2017, Ithmaar Bank implemented an electronic queuing app
(Ithmaar eQ app) to help improve the branch experience for customers
In December 2017, State Bank of Pakistan eased its monetary control by allowing them to plan branch visits in advance thereby significantly
on the PKR/$ exchange rate amid growing pressure on foreign reducing, and potentially even eliminating, waiting time altogether.
currency reserves. As a result, the Pakistan rupee declined to 110 as of
31 December 2017 from the earlier stable level of 104-105 (until 30 The Ithmaar eQ app, a smart phone application available for free
November 2017). download on both the App Store for iPhones and Google Play for
Androids, allows Ithmaar Bank customers to view real-time information
(Sources: United Nations, Department of Economic and Social Affairs - on all branches, including how far away and how busy each is. The
World Economic Situation and Prospects 2018, December 2017; State Ithmaar eQ app allows customers to directly book appointments or
Bank of Pakistan – First Quarterly Report 2017-18) issue virtual eTickets for the nearest or most convenient branch, and
notifies customers when their turn approaches. The app provides
Clear focus on core business
directions to each branch, as well as their specific timings.
Ithmaar Bank’s commitment to its customer-centric approach defined
and helped drive the Bank’s growth throughout 2017. By the end 2017, Ithmaar Bank, in line with its customer-centric
strategy, began providing a pioneering new service to customers
The Bank started the year, for example, by re-launching its popular opening new accounts at the Bank, allowing them to instantly collect
prize-linked saving account, Thimaar, to offer customers increased their debit cards. The service, initially only available at the Main
chances to win while lowering the minimum deposit. The changes Branch, is now being rolled out to the 15 other branches in the Ithmaar
were made in response to specific customer requests, and underscore Bank retail network.
how closely the Bank listens to customers and how seriously its takes
their feedback. All these initiatives have contributed to significant growth in business
across the retail branch network.
Ithmaar Bank launched in May 2017 its Sharia-compliant corporate
credit card in affiliation with MasterCard. The card, which was tailored In 2017 Ithmaar Bank, as Manager of the Dilmunia Development Fund,
to meet the specific requirements of its corporate customers, Small launched a selection of development plots on the island, including “The
and Medium Enterprises (SMEs) and other business owners, allowed Eastern Neighbourhood” and “High Eight”.
customers greater control over their business payments and marked a
significant step towards popularizing cashless payments. Throughout the year, the Bank’s Commercial and Financial Institutions
(CFI) department focused on growing the SME portfolio, as well as on
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 11
developing and strengthening the Bank’s relationship with corporate Security certification
and financial institution clients. The emphasis on diversification, with In April 2017, Ithmaar Bank became one of the first banks in Bahrain
financing of logistics, manufacturing, automobile trading, infrastructure to be certified to the Payment Card Industry Data Security Standard
and social housing development sectors, contributed to the growth of (PCI-DSS) v3.2, a prestigious, internationally-celebrated payment
the Bank’s financing assets portfolio. The customer onboarding process security certification that put the Bank on par with some of the best
was also further enhanced in 2017 to improve the asset risk profile. On in the world. The PCI-DSS is a data security standard for organisations
the liabilities side, CFI steadily grew its liabilities portfolio and attracted that handle branded payment cards from the major card solutions. The
Mudaraba deposits from financial institutions, and government and PCI Standard is mandated by the card brands and administered by the
quasi-government entities.. The Bank’s Private Banking Team continued Payment Card Industry Security Standards Council. Ithmaar Bank earned
to build relationships with new High Net Worth Individuals (HNWI) the certification after successfully completing a comprehensive audit
segments. and demonstrating compliance to one of the most stringent and most
coveted security standards in the world.
In 2017, Ithmaar Bank also hosted a training session entitled “Towards Institutions Futsal Tournament hosted by Al Najma Club, the team
Process Success” for all branch employees. The session highlighted finished as the runner up.
the principles of process re-engineering and its importance in today’s
challenging environment as well as the significant contribution that Promotions, key management appointments
employees can make in achieving process excellence. Other training In line with its long-standing commitment to reinforcing its merit-
programmes in 2017 included an Advanced AML Risk Management based culture, promoting from within and developing its entire
training programme for senior management, compliance workshops workforce, including the leadership, Ithmaar Bank announced several
for all departments, and a Mystery Shopping workshop arranged promotions and key management appointments in 2017.
for Branches Network, Call Center and Product Development and
Management employees. In March, Yousif Alkhan was assigned the additional responsibility
of Administration and named Head of Information Technology and
Celebrating success Administration; in October, Abdulla Abdulaziz Ali Taleb was promoted
In 2017, ten employees who had recently earned professional certificate to Assistant General Manager, Head of the Commercial and Financial
in Islamic finance from the Bahrain Institute of Banking and Finance Institutions; and in November, Abdulla Al Abbasi was appointed as
(BIBF) were honoured at a ceremony hosted by the BIBF and attended Head of Product Development and Management.
by Ithmaar Bank executives. The employees, from the Commercial
In November, the Bank also announced the promotion of its two
and Financial Institutions, Retail Banking, Product Development and
most senior executives to the post of Deputy Chief Executive, naming
Management, and Compliance & Anti Money Laundering departments,
Abdulhakeem Khalil Al Mutawa Deputy Chief Executive Officer –
had earned the Advanced Diploma in Islamic Finance.
Banking Group, and Ravindra Anant Khot Deputy Chief Executive Officer
In 2017 Ithmaar Bank employees won first place at the Nations – Support Group.
Category in the Bahrain SWS Endurance Championship. Although it was
the first time the Bank participated in the Annual Banking and Financial
Training (Bahrain)
BIBF levy training Total: 1,764 Hours
Managers and above: 221 Hours
Below Managers: 1543 Hours
External Training - Bahrain Total: 1,398 Hours
Managers and above: 618 Hours
Below Managers: 780 Hours
External Training - Abroad Total: 168 Hours
Managers and Above: 136 Hours
Below Managers: 32 Hours
In-house training Total: 3564 Hours
Managers and Above: 859 Hours
Below Managers: 2705 Hours
Financial Advice Programme (FAP) Level 1 2 Employees successfully complete the Programme
5 Employees successfully completed Module 1
Financial Advice Programme (FAP) Level 2 3 Employees successfully complete the Programme
2 Employees successfully completed Module 1
Anti-Money Laundering (AML) New Joiners: 37 Employees
Annual Refresher Course: total 132 employees attended as follows:
106 Employees through E-Learning System
Management Session: 19 employees
14 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Male 67 58 54 9 0 0 188
Female 16 37 35 2 0 0 90
Total 83 95 89 11 0 0 278
Role in the community In 2017, Ithmaar Bank provided financial support to the Bahrain
The 2017 focus on core business did not distract Ithmaar Bank from its Institute of Banking and Finance, the University of Bahrain, the
long-standing commitment to playing a real and meaningful role in Science India Forum Bahrain and the World Robotics Championship to
the community in which it operates. This commitment goes far beyond host various student-focused exhibitions and events. The Bank also
philanthropy and involves both the Bank as well as its employees at all supported two RCO initiatives, one to develop widows’ cooking and
levels. management capabilities to help start their own home businesses, and
another to help support orphans to join sports programmes.
Sixteen Ithmaar Bank employees, for example, volunteered their time
in 2017 to help prepare Bahrain youth for the future by delivering Bank also provided financial support for the Third International Quran
various programmes in cooperation with InJaz Bahrain, a non-profit Recitation that was organised by the Bahrain Ministry of Justice,
organization that aims to empower young people for economic Islamic Affairs and Endowment, as well as an Islamic Society Center for
success. Da’awa initiative for printing the Quran.
Working with InJaz, Ithmaar Bank also hosted a series of summer In 2017, Ithmaar Bank continued its support, for the tenth consecutive
camps for children of various age groups. The programme, a first of its year, of the King Hamad Trophy Golf Championship. The Bank
kind in Bahrain, involved children of Ithmaar Bank employees spending also provided financial support for the Nasser Bin Hamad Football
a full day at the Bank participating in various activities designed to Championship in Ramadan, the Eight Bahrain National Arabian Horse
help them gain practical financial knowledge. A total of three, day-long Festival which was organized by the Bahrain Royal Equestrian and
summer camps were conducted over the summer period. Ithmaar Endurance Federation, the Island Classic Charity Golf Tournament which
Bank also supported the “Head Start” Injaz programme which aimed at helps raise funds for the American Mission Hospital, and the Bahrain
helping new graduates find the perfect job and teach them the skills Motorsports Marshals Club. The Bank also continued to support the
needed to succeed in the workplace. Bahrain Football Association which organises the King’s Football Cup.
In 2017, Ithmaar Bank continued its popular Summer Internship Ithmaar Bank also provided financial support to the Bahrain Cancer
programme which aims to help nurture Bahraini undergraduates into Society, the Bahrain Society for Training and Development, the Bahrain
future banking professionals. Twenty-five students participated in the Future Society for Youth, the Bahrain Contractors Society, the Bahrain
two month-long programme which provides real-world experience and Chapter of the Institute of Chartered Accountants of India, and the
outlines how to deal with daily challenges in real work-life situations. Bahrain Society for the Prevention of Cruelty to Animals.
Ithmaar Bank continued in 2017 to support the education of Ithmaar Bank also sponsored key national events, including the
underprivileged students and, together with the Kingdom of Bahrain’s “Invest in Bahrain Forum 2017” which was organized by the Ministry
Royal Charity Organisation (RCO), sponsors 18 orphaned students of Industry, Commerce and Tourism, and participated in key industry
from preschool through to Grade 12 at an accredited private school events including the Accounting and Auditing Organization for Islamic
in Bahrain, as well as one Bachelor degree student at an accredited Financial Institutions (AAOIFI) Sharia Conference and the AAOIFI–World
university in Bahrain. Bank Conference, as well as the World Islamic Banking Conference and
a credit seminar organised by the General Council for Islamic Banks and
Throughout the year, the Bank also continued to support deserving Financial Institutions.
local charities and participate in various community activities.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 15
Award winning achievements and exemptions extended to regional and international organisations
Corporate Social Responsibility Awards operating under the Arab League. The UAB enjoys full financial,
administrative and organisational autonomy. According to organisers,
Ithmaar Bank, which has long played an active role in supporting the
the award is “a great achievement and a powerful testimony to the
local community, earned both local and regional praise and recognition
Bank’s remarkable success.”
for its contributions in 2017.
Best Innovation in Retail Banking and Best Islamic Bank
In December 2017, for example, Ithmaar Bank was presented the Arab
in Bahrain 2017
Eagle Award for Corporate Social Responsibility (CSR) by the Tatweej
Academy in recognition of its continuous efforts in support of the Ithmaar Bank won two prestigious awards - Best Innovation In Retail
community. Banking Bahrain 2017, and Best Islamic Bank Bahrain 2017 - from the
U.K. based International Banker magazine.
During the award ceremony, which was held in Dubai and organised
by the Tatweej Academy for Excellence in the Arab Region, Ithmaar The awards were established to identify the leading organisations
Bank Chairman His Royal Highness Prince Amr Al Faisal was honoured within the banking industry that represent the benchmarks of
for the Bank’s CSR initiatives and presented with the Arab Eagle achievement, corporate governance, technological development
Award. The Award was received on his behalf by Ithmaar Bank and customer service and help to drive economic growth in the
Chief Executive Officer, Ahmed Abdul Rahim, from Major General countries in which they operate. The Banking Awards are open to
Dr. Abdul Qudous Al Obaidli, Chairman of the Emirates Strategic all banking institutions regardless of size, market cap or number
Planning Association and Assistant Commander-in-Chief of Quality and of employees, and the fact that Ithmaar Bank has won two award
Excellence at the Dubai Police. categories is testimony to the significance its achievements. According
to the organisers, the award identifies “the best organisations and
Ithmaar Bank was nominated by the Union of Arab Bank based on the individuals in the sector, measured not only by growth, liquidity and
prestigious international award it received in 2016 at the World Islamic profitability but also taking into consideration issues such as product
Banking Conference in recognition of its Corporate Social Responsibility innovation, use of Information Technology (IT), corporate governance,
and Financial Disclosure. transparency and sustainability.”
Earlier, in July 2017, Ithmaar Bank was honoured at a regional In January 2017, Ithmaar Bank formally launched Bahrain’s first ever
conference for its continuous support of the community and presented mobile payment solution, EasyPay, in partnership with Batelco,
with the Best CSR Award for an Islamic Bank 2017 in recognition of Bahrain’s leading telecom provider, and Arab Financial Services, one of
its various initiatives. The award was presented at the CSR Conference the region’s leading electronic payments outsourcing service providers.
and Award for Islamic Banks which was held in Bahrain and The solution uses secure Near Field Communication (NFC) tags to
attended by senior bankers, CSR experts and representatives of Non- eliminate the need for cash or cards by allowing customers to shop
Governmental Organisations as well as government and banking and simply by tapping their mobile phones at Point of Sale (POS) machines.
finance officials from Bahrain, Saudi Arabia, the United Arab Emirates,
Kuwait, Oman, Jordan, Lebanon, Sudan, and the Republic of Djibouti. Social Media recognition
The Bahrain Minister of Foreign Affairs, Shaikh Khalid bin Ahmed bin
Best Islamic Retail Bank Mohammed Al Khalifa, presented Ithmaar Bank Chief Executive Officer,
In 2017, Ithmaar Bank was named Best Islamic Retail Bank in Bahrain Ahmed Abdul Rahim an honoring certificate as part of celebrations
and honoured at a ceremony attended by senior bankers from across marking World Social Media Day in Bahrain.
the Middle East. Ithmaar Bank was presented the prestigious award
following a comprehensive selection and review process conducted The President of Social Media Club said this was in appreciation for the
by a committee of high-level economists and banking professionals, Bank’s contribution in developing social media in the Kingdom, as well
as well the research department of Union of Arab Banks (UAB) and as implementing international professional standards at the Bank.
the World Union of Arab Bankers (WUAB). The WUAB is a prominent
Arab Forum that is patronized by Arab leaders of economics and
finance, as well as influential banking pioneers, top experts, successful
businessmen, remarkable professionals and brilliant entrepreneurs.
WUAB, a sister organisation of the UAB, is a non-profit, non-
governmental organisation that enjoys the privileges, immunities
16 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
FINANCIAL REVIEW
BOARD OF DIRECTORS
Nabeel Khalid Kanoo and Integrated Property Investments (United Kingdom and Tanzania).
Independent, Non-Executive Board Member Previously, Mr. Ali served at Dar Al Maal Al Islami Trust (DMI) where
he was Chief Executive Officer and Chief Operating Officer from
Elected 1 November 2016
1986 to 1999 and, before that, Executive Vice-President Finance and
Mr. Kanoo has more than 19 years of business and management Vice-President in charge of Internal Audit from 1983 to 1986. Prior
experience. He is a Member of the Ithmaar Holding Board of Directors. to his DMI appointments, Mr. Ali was Director of Finance and Chief
Financial Officer at the Arab Authority for Agricultural Investment and
Mr. Kanoo is Director of Public Relations and Marketing of YBA Kanoo
Development (Sudan). He has served in the African Development Bank
as a group, a Director of YBA Kanoo’s Saudi Arabia Board, a Director
for ten years and his last post there was CFO of the Bank. He has also
of YBA Kanoo’s Bahrain Board, a Director of Kanoo Travel Co. UK and
served with the Arab Fund for Economic and Social Development and
France, and a Director of Kanoo and El-Shabrawy Ltd. Co. Egypt. Mr.
the Arab Authority for Agriculture and Investment where he was also
Kanoo holds a Bachelor of Business Management Degree from St.
the CFO. He has served these two institutions for seven years. Mr. Ali
Edwards University, Austin, Texas.
is a Certified Accountant, Leeds College of Commerce, UK, and a Fellow
Abdulellah Ebrahim Al-Qassimi of the Association of Chartered Certified Accountants.
Independent, Non-Executive Board Member Dr. Amani Khaled Bouresli
Elected 1 November 2016 Independent, Non-Executive Board Member
Mr. Al-Qassimi has more than 34 years of diversified management Elected 1 November 2016
experience. He is a Member of the Ithmaar Holding and the IB Capital
Dr. Bouresli, formerly the Kuwait Minister of Commerce and Planning
Board of Directors.
and Development and, before that, Minister of Commerce and
His previous positions include Chief Executive of Tamkeen (the Industry, has almost 31 years of experience in training, consulting and
Labour Fund), from which he resigned in May 2010; Deputy Chief banking.
Executive Officer of the Labour Fund Project at the Bahrain Economic
Dr. Bouresli is a member of the Ithmaar Holding and the IB Capital
Development Board; Assistant Undersecretary for Training at
Board of Directors.
the Bahrain Ministry of Labour and Social Affairs; and Director of
Engineering and Maintenance at the Bahrain Ministry of Health. He has She is currently Professor of Finance at Kuwait university’s College of
also served as the Chairman of the Bahrain Qualifications Framework Business Administration, and her research interests include Capital
Steering Committee; and the Steering Committee of Career Expo; Markets Regulations, Corporate Governance and Strategic Planning.
and was a Board member of the Bahrain Society of Engineers and Dr. Bouresli is also a Member at the Board of Trustees at Kuwait
the Bahrain Consumer Protection Society. He is currently a Member Transparency Association for the Anti-Corruption Award for the Public
of the Board of Solidarity Group Holding, Naseej, Faysal Bank Limited Sector in Kuwait. She earned the Middle East Excellence Award in
(Pakistan); and Saudi Solidarity Takaful Co. (KSA), as well as a member business administration and economics for her contributions toward
of the Board of Trustees of Arabian Pearl Gulf School. Mr. Al-Qassimi the development of the capital market structure and regulation in
holds a BSc in Civil Engineering from Queen Mary College, University Kuwait. She is the founder of the Governance Excellency Prize. Prior to
of London, UK; a MSc in Health Facility Planning from the University of her ministerial appointments, Dr. Bouresli was Chairman and Founder
North London, UK, and a Diploma in Health Care Management from the of Capital Standards Rating Co., the first independent credit rating
Royal College of Surgeons in Ireland, Bahrain. agency in Kuwait, from 2009 to 2011; a Board Member at Burgan
Bank, Kuwait, from 2010 to 2011; and Head of the Capital Market
Omar Abdi Ali
Authority Project from 2006 to 2007. Dr. Bouresli, who has many
Non-Executive Board Member published work in refereed journals as well as in specialised books
Elected 1 November 2016 and magazines, began her banking career at the National Bank of
Mr. Ali has more than 49 years of experience in financial and general Kuwait in 1987, and her teaching career at Kuwait University in 1988.
management in development as well as commercial and investment Dr. Bouresli holds a BC in Finance and Banking from Kuwait University,
banking in Africa, the Middle East and Europe. He is a Member of the Kuwait; an MBA from Seattle University, USA; and a PhD in Finance
Ithmaar Holding Board of Directors. Mr. Ali is Founder and Chairman from Southern Illinois University at Carbondale, USA.
of the Board of Directors of Quadron Investments Co. Ltd. (Sudan)
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 21
Sheikh Dr. Nedham Mohammed Saleh Yaqouby Sheikh Dr. Osama Mohammed Saad Bahar
Member Member
Sheikh Dr. Yaqouby is a prominent, highly-respected Islamic Sharia Sheikh Dr. Bahar is a well-known, highly-respected Sharia scholar from
scholar and a successful businessman from the Kingdom of Bahrain. He the Kingdom of Bahrain.
is a member of the Sharia Board of the AAOIFI, a member of the Sharia
Supervisory Board of the Central Bank of Bahrain (CBB) and Chairman He is currently a Sharia member at First Energy Bank. He is also the
or a member of the Sharia Supervisory Boards of several banks, Islamic Chairman or a member of the Sharia Supervisory Boards of several
financial institutions, investment funds and international banks in the other Islamic banks and financial institutions, funds and investment
GCC region, Arab countries and around the world. portfolios in Bahrain and abroad.
In 2007, the King of Bahrain, His Majesty King Hamad bin Isa Al Khalifa, Sheikh Dr. Bahar holds a Doctorate from Lahaye University in the
awarded Sheikh Dr. Yaqouby the Order Merit in recognition of his Netherlands, a Master’s degree from Al Emam Al Awzae University in
services in Bahrain and abroad. Sheikh Dr. Yaqouby has also received Lebanon, and a Bachelor’s degree in Islamic Sharia from Prince Abdul
the Euromoney award for Innovation in Sharia Supervision, as well as Qader Al Jaazaeri University of Islamic Studies in Algeria.
the Malaysian Islamic Banking award and other awards.
Sheikh Dr. Bahar has authored several books in Islamic banking as well
Sheikh Dr. Yaqouby holds many academic, appreciation and honorary as society affairs. He has participated in and conducted several radio
degrees. He has authored a large number of books. interviews and written newspaper columns.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 23
EXECUTIVE MANAGEMENT
CORPORATE GOVERNANCE
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 27
CORPORATE GOVERNANCE
Ithmaar Bank follows the “High Level Controls” and “Public Disclosure” The written Code of Ethics and Business Conduct that binds all
Modules of the Rulebook issued by the Central Bank of Bahrain (CBB) employees and members of the Board of Directors, lends further
and the Corporate Governance Code of the Ministry of Industry, weight to the practical implementation of our stated policies.
Commerce and Tourism, Ithmaar Bank’s Articles and Memorandum of
Association, the Bahrain Commercial Companies Law, the Accounting The “Comply or Explain” Principle
and Auditing Organization for Islamic Financial Institutions (AAOIFI) and The CBB Rulebook requirements in the HC Module specify that the
international best practices, where applicable. Bank must comply with the Rules and Guidelines of the HC Module,
or explain its non-compliance in the Annual Report. As part of its
Ithmaar Bank’s Corporate Governance Policy provides guidance on commitment to adherence with the CBB regulations, the Bank wishes
engaging with its stakeholder groups. to clarify the following:
Recognising its fundamental stewardship role towards shareholders, it • The Chairman is a non-executive director but not an independent
is Ithmaar Bank’s policy to treat shareholders in line with the governing director, as defined by the CBB, as he is the Chairman of the Board of
laws and regulatory guidelines. The overarching goal is to ensure Supervisors of Dar Al Maal Al Islami Trust, the Bank’s controller.
sustainable growth with due consideration to both current and future
risks, and thereby generate optimum value to shareholders over the • During the year, one Board members did not satisfy the 75 percent
long-term. The Bank adheres to Sharia principles in striking a balance minimum required attendance percentage for Board meetings due to
between the interests of its various stakeholders. the reasons explained under the Board Meeting Attendance section
of this report.
Ithmaar Bank adheres to a business approach that is transparent, Developments in regulations
honest and fair. It has established various written policies such as
On an ongoing basis, the Bank monitors updates in the CBB
the Code of Ethics and Business Conduct, Anti-Money Laundering and
requirements, including those stipulated under the HC Module, and
Whistle-Blowing Policy for strict adherence by Directors, executives and
implements the necessary updates to its processes and procedures in
employees at all levels. These are distributed as guidelines through
response to those regulatory changes. There were no material changes
multiple internal communication channels.
introduced to the HC Module by the CBB during the year.
The Board’s adherence to corporate governance practices is underlined
Administration
by various principles, such as integrity, transparency, independence,
accountability, responsibility, fairness, Sharia principles and social Ithmaar Bank is administered by the Board of Directors and the Sharia
responsibility. Supervisory Board and, for day-to-day matters, by the Executive
Management.
Moreover, the corporate governance policies are designed to lay a
solid foundation for the executive management and the Board of
Directors in managing the Bank, as well as to promote ethical and
responsible decision-making, safeguard integrity in financial reporting,
make timely disclosures, respect the rights of shareholders, recognise
and manage risk, encourage enhanced performance, remunerate fairly
and responsibly and recognise the legitimate interest of stakeholders.
28 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
ORGANISATION CHART
Remuneration &
Audit, Governance Committee & Nomination Committee Sharia Coordination &
Chief Executive Officer
Risk Management Committee Implementation Officer
Financial Shareholders
Treasury Collections
Control Affairs
Corp. Secretary Commercial Remedial
& Legal Affairs* Banking & FI Management unit
SMEs
Financial Institutions
Notes:
* For Corporate Secretarial related matters, the Corporate Secretary reports to the Chairman of the Board of Directors and, administratively, reports to the Chief Executive Officer.
** The Head of Marketing & Corporate Communications reports to the Deputy CEO Support Group for Corporate Communications, and to the Head of Retail for
Marketing Communications.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 29
Duty of Obedience All appointments to the Board of Directors are governed by and
The Board members are required to act in accordance with Ithmaar subject to Ithmaar Bank’s Memorandum & Articles of Association, the
Bank’s rules and policies to further its goals and objectives. In Corporate Governance Policy and the laws, rules, regulations, policies
addition, the Board members must comply with all relevant laws and and charters in place, as amended from time to time.
regulations. The duty of obedience forbids the Board members from
The Remuneration and Nomination Committee reviews annually
acting outside the scope of Ithmaar Bank’s internal authorities and
the composition and performance of the Board of Directors. The
policies.
Remuneration and Nomination Committee’s duties in relation to
Duty of Care the composition and performance of the Board include, among
other things, assessing the skills required for the Board members to
The Board members are under duty to exercise, in carrying out their
competently perform their responsibilities and meet their objectives
responsibilities in good faith, the same level of care, skill and diligence
as well as developing and implementing a plan to identify, assess and
that an ordinary, prudent person would exercise in the same position
enhance the Board members’ competencies.
or under similar circumstances. Accordingly, the Board members must
act in a manner that they reasonably believe is in the best interest of In the event of a vacancy on the Board of Directors, the Remuneration
Ithmaar. and Nomination Committee shall make recommendations to the Board
for the appointment of a director, which recommendation shall be
Duty of Loyalty
made pursuant and subject to the legal and regulatory requirements in
This duty requires the Board members to act in good faith, solely and place.
collectively, in the best interest of Ithmaar Bank. The Board members
should not act out of expedience, avarice or self-interest. The Board All the Board members receive a letter of appointment signed by the
members are barred from using Ithmaar Bank properties and assets Chairman in which relevant information, including responsibilities, are
for their personal needs or seeking business opportunities for personal described.
benefit.
The Board members also receive a copy of the Code of Ethics and
Ithmaar Bank provides insurance to indemnify the Board members for Business Conduct.
negligence, default, breach of duty or breach of trust, provided that the
Board member was acting in good faith. BOARD INDUCTION AND DEVELOPMENT PROGRAMME
Ithmaar Bank prepares an all-day induction program for newly
The above duties are detailed in the Corporate Governance Policy and appointed/elected Board members, which starts with a welcome note
Code of Ethics and Business Conduct, which is approved by the Board. from the Chief Executive Officer. Thereafter, members of the Executive
Management introduce Ithmaar Bank in detail, covering Ithmaar Bank’s
BOARD MEMBERS’ ELECTION AND EVALUATION SYSTEM
history, structure, subsidiaries, products, strategy, financial performance
Any shareholder who owns 10 percent or more of the issued share and organizational chart. This is followed with presentations from the
capital of Ithmaar Bank (rounded up to the nearest integer) shall heads of various departments in respect of their role and function
have the right to appoint a representative on the Board, being one within Ithmaar Bank. The Bank also arranges training sessions
representative for each 10 percent owned. However, if a shareholder throughout the year for Board members and Executive Management
exercises this right, he shall lose his right to vote in the General to keep them abreast of recent legal, regulatory, market, technological
Meeting for the percentage of which he used to appoint a Board and other developments in the banking sector.
member.
BOARD MEMBERS’ REMUNERATION
Subject to the foregoing, the shareholders shall elect members of the
The Board members’ sitting fees for 2017 amounted to BHD127,800.
Board by a secret accumulative ballot. Accumulative ballot means each
Sharia Supervisory Board retention fee amounted to BHD22,620 and
shareholder has one vote for each share held. The shareholder can use
their sitting fees for 2017 was BHD7,917.
his shares to vote for a single member, or divide his shares to vote for
multiple Board members.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 31
Risk adjustments
Long-term performance measures deferred bonus plan can be adjusted/cancelled in certain situations.
The malus and clawback provisions allows the Board of Directors to These events include the following:
determine that, if appropriate, elements under the deferred bonus plan
• Reasonable evidence of wilful misbehaviour, material error,
can be forfeited/adjusted or the delivered variable compensation could
negligence or incompetence of the employee causing the Bank or
be recovered in certain situations. The intention is to allow appropriate
the employee’s business unit to suffer material loss in its financial
response if the performance factors on which reward decisions were
performance, material misstatement of financial statements,
based turn out not to reflect the corresponding performance in the
material risk management failure or reputational loss or risk due to
longer term. All deferred compensation awards contain provisions that
such employee’s actions, negligence, misbehaviour or incompetence
enable the Bank to reduce or cancel the awards of employees whose
during the concerned performance year.
individual behaviour has had a materially detrimental impact on the
Bank during the concerned performance year. • The employee deliberately misleads the market and/or shareholders
in relation to the financial performance of during the concerned
Any decision to take back an individual’s award can only be taken by performance year.
the Board of Directors.
Clawback can be used if the malus adjustment on the unvested portion
The Bank’s malus and clawback provisions allows the Board to is insufficient given the nature and magnitude of the issue.
determine that, if appropriate, vested/unvested elements under the
34 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Upfront cash The portion of the variable compensation that is awarded and paid out in cash on conclusion of the performance
evaluation process for each year.
Deferred cash The portion of variable compensation that is awarded and paid in cash on a pro-rata basis over a vesting period of three
years.
Deferred Non-cash The Bank has two forms of non-cash awards to align long term performance and risk and to encourage employee
retention:
• Deferred short term incentives – incentives that are rewarded for current performance and considered as earned but
are deferred in terms of payment to employees. These include deferred annual bonuses in the form of Phantom
Shares Awards (‘PSA’) or deferred annual bonus Performance Linked Units (PLU). The minimum term of deferral is
three years.
• Future performance awards (FPA) – incentives that are awarded with future performance and service conditions i.e.
not yet earned by the employee. FPAs include Long Term Incentive Plan (LTIP) shares in the form of Phantom Shares
and performance linked units and provide better risk alignment to the business and individual performance of the
employee.
Assistant
General
Element of variable Managers and Executive Senior Deferral
remuneration above Managers period Retention Malus Clawback
Upfront cash 40% 70% Immediate - - Yes
Over 2
- 30% years - Yes Yes
Deferred cash
Over 3
10% - years - Yes Yes
Over 3
Deferred non-cash 50% - years 6 months Yes Yes
2017
Sign on Guaranteed Variable remuneration
Fixed bonuses bonuses
No. of remuneration (Cash/ (Cash/ Upfront Deferred
Staff Cash Others shares) shares) Cash Shares Cash Shares Others Total
Approved persons
Business lines 5 1,130,823 - - - - - - - - -
Approved persons
Control & support 8 1,083,290 - - - - - - - - -
Other material risk Not Not
takers Applicable Applicable - - - - - - - - -
Other staff 3 258,730 - - - - - - - - -
Other Staff of Bahrain Not Not
Operations Applicable Applicable - - - - - - - - -
Staff of Branches & Not Not
subsidiaries Applicable Applicable - - - - - - - - -
Total 16 2,472,843 - - - - - - - - -
Deferred awards for Current Year (2017)
Cash Shares Total
BHD Number BHD BHD
Balance transferred / adjusted as part of reorganisation (Note 1) 210,679 7,240,713 744,024 954,703
Paid out / released during the period before conversion to Phantom shares - (1,209,677) (93,490) (93,490)
Adjustment on conversion of shares to Phantom shares - 1,881,546 - -
Phantom shares post conversion 210,679 4,149,490 650,534 861,213
Awarded during the period - - - -
Paid out / released during the period (64,787) - - (64,787)
Service, performance and risk adjustment - - - -
Bonus share adjustment - - - -
Closing Balance 145,892 4,149,490 650,534 796,426
Notes:
1- The payment of vested shares for the deferred component was completed after the reorganisation.
2- The number of shares have been adjusted to reflect the Phantom Shares in Ithmaar Bank B.S.C. (c) post reorganisation..
Additional remuneration data will be made available on the website for the year ended 31 December2017.
36 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Board committees This committee also assists the Board in fulfilling its governance
In accordance with regulatory requirements and best practices, the responsibility, particularly to (a) oversee and monitor the
Board has established the following committees and has adopted implementation of a robust compliance framework by working
charters setting out the matters relevant to their composition, together with the Management and the Sharia Supervisory Board, and
responsibilities and administration. (b) provide the Board of Directors with reports and recommendations
based on its findings in the exercise of its function.
AUDIT, GOVERNANCE AND RISK MANAGEMENT COMMITTEE
The objectives of Committee also include making recommendations to
During 2017, the Audit and Governance Committee (AGC) and the
the Board in relation to the overall risk appetite and tolerances and the
Risk Management Committee (RMC) were merged into the Audit,
risk policies within which to manage them. These policies cover credit
Governance and Risk Management Committee (AGRMC). Also, their
risk, market risk, operational risk and liquidity risk in addition to any
related functions and responsibilities are now under the AGRMC.
other risk categories Ithmaar Bank faces in carrying out its activities.
The AGRMC is chaired by an Independent Director and is comprised of:
The Committee also recommends and monitors the overall risk
• Dr. Amani Khaled Bouresli – Chairperson and Member management framework in line the regulatory guidelines which
involves all business activities and operations policies, internal
• Sheikh Zamil Abdulla Al-Zamil – Member controls, methods of risk management and risk reporting to the Board.
• Mr. Abdulellah Ebrahim Al-Qassimi – Member The Committee also ensures that the information security and the
business continuity management framework of the Bank is in line
• Mr. Nabeel Khalid Kanoo – Member
with regulatory guidelines and commensurate to the scale of business
• Sheikh Dr. Osama Bahar – Member operations of the Bank.
Sheikh Dr. Bahar is a Sharia Supervisory Board Member with a voting
The key matters reviewed and, as appropriate, approved and/or
right in respect of the agendas relating to the Corporate Governance
recommended for the approval of the Board of Directors during the
The AGRMC meets a minimum of four times in a year. year include:
• Reviewing the consolidated financial statements and recommending
The AGRMC is appointed by the Board of Directors to assist in
to the Board for approval;
reviewing the selection and application of the accounting and
financial policies, reviewing the integrity of the accounting and • Reviewing and approving the proposed annual Internal Audit plan
financial reporting systems and the effectiveness of the internal and strategy and all reports issued by the Internal Audit Department;
controls framework, monitoring the activities and performance of • Providing oversight for the Corporate Governance, Compliance and
the internal audit function and external auditors and coordinating the Regulatory requirements.
implementation of the Corporate Governance Policy framework.
• Updating and aligning all risk policies in line with changes in the
The Committee reviews and, as appropriate, approves and/or regulatory requirements;
recommends for the approval of the Board of Directors, among • Reviewing of existing risk limits and establishing new risk limits for
other things: the interim and annual consolidated financial results; better control of credit, market, operational, liquidity, profit rate risk
status updates on compliance with various regulatory requirements; and concentration risks; and
implementation on various regulatory reports; internal and external
audit reports the status of their implementation (as appropriate); and • The Internal Capital Adequacy Assessment Process (ICAAP) report for
new accounting and regulatory pronouncements and their implications. review.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 37
ATTENDANCE
2017 Board of Directors / Board Committees Meetings Attendance
Audit,
Board of Governance & Risk Executive Remuneration &
Directors Management Committee Committee Nomination Committee
Eligible Attended Eligible Attended Eligible Attended Eligible Attended
1 HRH Prince Amr Mohammed Al Faisal 5 5 - - - - - -
Mr. Khalid Abdulla-Janahi
2 (Resigned 11 June 2017) 2 2 - - - - - -
Shaikha Hissah bint Saad Al-Sabah
3 (Resigned 20 August 2017) 3 1 - - - - 2 1
4 Sheikh Zamil Abdullah Al-Zamil 5 3 3 2 - - - -
5 Governor Abdelhamid Abomoussa 5 5 - - 2 2 - -
6 Mr. Nabeel Khaled Kanoo 5 4 3 3 - - - -
7 Mr. Mohammed Bucheerei 5 5 - - 2 2 - -
8 Mr. Abdulellah Ebrahim Al-Qassimi 5 5 3 3 - - 2 2
9 Dr. Amani Khaled Bouresli 5 5 3 3 - - - -
10 Mr. Abdulshakoor Hussain Tahlak 5 4 - - - - 2 2
Sheikh Mohamed Abdullah El Khereiji
11 (Appointed 16 October 2017) 1 1 - - - - - -
12 Mr. Omar Abdi Ali 5 5 - - 2 2 - -
Note: *Sheikh Dr Osama Bahar, member of the Sharia Supervisory Board, is also a member of the Audit, Governance and Risk Management
Committee. He attended all four meetings.
In accordance with the Central Bank of Bahrain’s requirement and Ithmaar Bank’s Articles of Association, the Board of Directors shall meet at least
four times a year, and each Board member is required to attend at least 75 percent of all Board meetings in a financial year. The following Board
member did not satisfy the minimum required attendance percentage:
The profiles of all SSB members are included in the Sharia Supervisory
Board section.
40 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
3. August 2017: The Assistant General Manager, Head of Retail Banking Risk Management
was appointed as an alternate member of the Investment and Credit Ithmaar Bank has in place a comprehensive Enterprise Wide Risk
Committee. Management Framework in place addressing all activities and
commensurate to the business operations and risk appetite of the
4. November 2017: The Information Security Steering Committee was
Bank. The Risk Management Framework plays a pivotal role in
formed and included the following members:
protecting the shareholder’s and customer’s interests and is accorded
• Deputy Chief Executive Officer, Support Group - Chairman paramount importance by the Board and the management.
• Chief Risk Officer, Head of Risk Management - Vice chairman The Risk Management Culture emanates at the level of Board of
• Deputy Chief Executive Officer, Banking Group - Member Directors who establish the risk appetite and tolerance levels in
line with the business strategy. The risk management framework is
• Assistant General Manager, Head of Retail Banking - Member detailed in the Risk Charter and the various risk management policies
• Assistant General Manager, Head of Information Technology and which include the approach and methodology for the management
Administration - Member of various risks. The risk appetite and risk policies are periodically
reviewed to maintain their relevance and alignment with the business
• Head of Legal and Company Secretary - Member
strategy and prevailing market conditions, and complies with the
• Acting Head of Internal Audit - Member guidelines of CBB.
• Head of Financial Control - Member
Risk Management in Ithmaar Bank is considered a collective
• Head of Banking Operations - Member responsibility and hence the risk management culture is effectively
• Head of Human Resources - Member communicated across the organization. Ithmaar Bank has an effective
risk governance structure enabling the effective monitoring and
• Head of Compliance and AML, Compliance Officer - Member management of risks across all business and support activities. The
• Information Security and Compliance Manager, Risk Management - Board is assisted by the Audit Governance and Risk Management
Member Committee which meet periodically to oversee the implementation
of the risk framework and management of the same. However the
• Information Security and Compliance Officer, Risk Management –
Board retains ultimate responsibility for the effective implementation
Secretary
and functioning of the risk management framework and thereby
Code Of Ethics And Business Conduct approves all risk management policies. The Audit Governance and
Ithmaar Bank’s Code of Ethics and Business Conduct applies to Risk Management Committee is supported by an independent Risk
members of the Board, as well as executive management, officers, Management Department headed by the Chief Risk Officer which is
employees, agents, consultants, and others, when they are responsible for implementing the Board-approved risk management
representing or acting for Ithmaar Bank. framework in close coordination with the senior management and all
other relevant departments.
The Board expects all Directors, as well as officers and employees,
to act ethically at all times and to acknowledge their adherence to The Risk management framework also encapsulates a robust
Ithmaar Bank’s policies. Any waiver of the Code of Ethics and Business monitoring and reporting process wherein the Risk Management
Conduct for a Director or executive officer may be granted only by Department monitors risk parameters on an ongoing basis against the
the Board or the appropriate Board committee and must be promptly Board approved limits and tolerance levels and presents the same to
disclosed to the shareholders. the management and the Board.
The employment of relatives of approved persons is covered under Additional information on the risk framework and the approach and
the Human Resource Policy which requires the employee to declare methodology of managing each dimension of risk is detailed in the
to the Human Resources Department the relationship (father, mother, Public Disclosures section.
brother, sister, husband or wife) with any approved persons at
the time of recruitment and/or subsequently, as appropriate. The
employees will be given a grace period of one year so one or more
of the relatives leave the Bank and exceptions, if any, require the
approval of the Chief Executive Officer.
42 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Risk Management Continued Ithmaar Bank has adopted specific initiatives and measures to facilitate
Compliance, Anti-Money Laundering and Internal Controls implementation of these policies and procedures. These include the
appointment of a Money Laundering Reporting Officer (MLRO), who
Compliance
is empowered with sufficient mandate to implement the Bank’s Anti-
Compliance risk is the risk of legal or regulatory sanctions, material Money Laundering (AML) programmes. The MLRO independently
financial loss, or loss of reputation that Ithmaar Bank may suffer as a enforces the AML policies and reports any incidents to the Board of
result of its failure to comply with the requirements of relevant laws Directors and/or the applicable regulatory authorities. All employees
and regulations. undergo compulsory AML trainings with regular refresher courses.
The AML and Know Your Customer (KYC) framework incorporates
Compliance risk is managed through the Compliance Management
the following four key elements: customer acceptance, customer
Policy which provides for the assessment of compliance risks,
identification procedures, transaction monitoring and risk management.
implementation of controls, monitoring and testing the compliance
status of Ithmaar, the independence of the compliance unit and INTERNAL CONTROLS
reporting of compliance related matters.
The Internal Control Framework of the Bank is overseen by the Board
Ithmaar Bank’s management ensures that business is conducted in Audit Governance and Risk Management Committee (AGRMC). The
conformity with high ethical standards and is in compliance with all Bank has a multi-faceted internal control framework in terms of the
applicable laws and regulations. The Compliance Officer ensures that following:
the Bank’s management and personnel are aware of the applicable
• Detailed operational policies and procedures detailing the controls to
regulatory requirements, and implications thereof, in order to achieve
be adopted for the various processes in place.
a consistently high level of compliance across the bank’s operations.
Each of Ithmaar Bank’s subsidiaries also employs local compliance • Clear segregation of duties to ensure there are no lapses in controls
officers, if applicable, to ensure adherence to local requirements and with adequate monitoring of processes.
regulatory issues. Consolidated reports are prepared for the Board’s • Robust Operational Risk Management Framework defining the
review. methodologies for identification, measurement and monitoring of
operational risks.
CUSTOMER COMPLAINT PROCEDURES
A formal customer complaints procedure is in place, in line with • Independent Internal Audit of all functions to measure the adequacy
the requirements of the Central Bank of Bahrain (CBB). A dedicated of internal controls across various processes and systems.
customer complaints unit and officer is responsible for handling the • Detailed Compliance Testing program to ensure that the provisions of
management of complaints. Contact details of the complaints unit are CBB in terms of high level controls and operational requirements are
published at all branches and on Ithmaar Bank’s website. All customer adequately adhered to.
complaints are promptly resolved up to the best satisfaction of the All processes and systems are evaluated on an ongoing basis by the
customers. concerned process owners and by the Risk Management through the
ANTI-MONEY LAUNDERING Risk Control Self-Assessment and Internal Audit departments for any
possible enhancements of controls from an audit perspective.
It is Ithmaar Bank’s policy to prohibit and actively prevent money
laundering and any activity that facilitates money laundering or the Any instances of control failures are immediately investigated by
funding of terrorist or criminal activities. a cross functional committee of business and control functions
to evaluate the need for further strengthening on controls across
For this purpose, the Bank has defined strict policies and procedures in processes and functions. The AGRMC actively monitors the Internal
compliance with the Financial Crimes Regulations issued by the CBB. Control Framework of the Bank based on the observations of the
These policies and procedures apply to all employees, branches and Internal Control, Risk Management, Compliance and Internal Audit
offices of the Bank. departments.
ITHMAAR BANK B.S.C. (c) ANNUAL
ANNUAL REPORT 2017 43
RISK AND REWARD • Aspire to the highest standards of truthfulness, honesty and fairness
in all its statements and dealings, and treat its customers fairly
In accordance with the principles of Islamic Sharia, all FUMs are
managed on a profit and loss sharing basis with the IAH bearing all • Exercise due care and diligence in all its operations, including the
risks except for gross negligence and misconduct. way it structures and offers its products and provides financing, with
particular regard to Sharia compliance, and to the thoroughness of
The profit or loss of a FUM is determined using the accounting policies research and risk management
normally applied by the Bank. The distribution of the profit or loss may
• Ensure that it has in place the necessary systems and procedures,
either be on a limited or continuous basis as follows:
and that its employees have the necessary knowledge and skills, to
Specific Term manage FUMs in accordance with this policy and other regulatory
rules
The IAH invests for a specific term, and profits/losses are accounted
for at the time the Fund is liquidated (or staged liquidation) and the • Take steps to ensure that it understands the nature and
capital is returned to the IAHs along with any profits/losses. circumstances of its IAHs so that it offers those products most
suitable for their needs, as well as offering financing only for Sharia-
Open Term compliant projects
The IAH may invest for an unspecified terms (such as Savings • Provide clear and truthful information both in any public document
Accounts), and profits are accounted for on a periodical basis during issued as well as to its actual and prospective clients, both during
the Modaraba period. URIA funds are not subject to administration the sales process and in subsequent communications and reports
fees.
• Recognise the conflicts of interest between it and its clients that
In case of RIA and CIU, specific expenses that may arise in relation to arise from the type of products it offers, and either avoid or disclose
the launching of a Modaraba fund and in employment of funds may and manage them, bearing in mind its fiduciary duties to IAHs as
be charged against the gross revenue of that Modaraba, provided this well as shareholders
is set out in the related Modaraba agreement. Audit and legal fees, • Ensure that its operations are governed by an effective system of
documentation and printing charges are all examples of expenses that Sharia governance and that it conducts its business in a socially
may be charged to the Modaraba. Distributable profit is calculated after responsible manner
all permitted expenses have been deducted.
INVESTMENT OBJECTIVES
The Bank applies appropriate income smoothening techniques to The investment objective of the funds is to provide maximum returns
ensure that profits are fairly distributed to the IAHs, both current and to both the IAHs and the Bank in a manner that is consistent with the
future. These include Profit Equalisation Reserves and Investment Risk Modaraba agreement of the specific fund and Sharia guidelines while
Reserves. at the same time managing risks within predetermined levels.
46 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
GOVERNANCE OF FUNDS UNDER MANAGEMENT A comprehensive policy is in place which outlines processes for
The Board of Directors is responsible for ensuring that the Funds managing funds. All funds are reviewed independently by the Risk
Investment Objectives are adhered to. The Board has established an Management department and the Compliance department prior to
Audit, Governance and Risk Management Committee, amongst its their approval and launch. Once approved, these funds are utilised
other responsibilities, to look after the interests of the IAHs. The Asset- strictly in accordance with the fund’s prospectus and terms of approval.
Liability Committee (ALCO) and Investment and Credit Committee (ICC)
URIA Funds are primarily used for retail and commercial financings.
play a pivotal role in monitoring the performance of funds. The Asset
The Bank diversifies the portfolio through establishing prudent limits
Management department is responsible for the effective management
determined by geographical areas, industry sectors, tenors, customer
of RIA and CIU funds. Customer affairs are handled by various business
type, etc. The composition, characteristics and diversification of the
units including the Retail Banking, Private Banking, and Commercial
Bank’s funding structure is recorded in various risk policies.
and Financial Institutions departments.
The Profit Distribution Sheet (Modaraba Account) provides details on
RIA and CIU funds are launched after comprehensive due diligence of
investment period and the Bank’s share of investments in 2017 as per
the market and the needs and risk appetite of investors.
the terms and conditions:
1 month 50
3 months 45
6 months 40
9 months 38
1 year 35
18 months 33
2 years 30
30 months 28
3 years 25
The average benchmark and declared rate of return or profit rate on Profit Sharing Investment Accounts (PSIA) by maturity in percentage terms
paid annually in 2017:
1 7 1 3 6 9 18 2 3
BD or US$ day days month months months months 1 year months years Years
Savings 0.10 - - - - - - - - -
General Modaraba 0.10 0.10 1.16 1.60 1.85 2.10 2.50 2.55 2.60 2.70
Special Modaraba - - 1.65 2.43 2.93 3.63 3.73 3.88 3.93 3.98
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 47
Contents
Consolidated financial statements 47
Report of the Sharia Supervisory Board 48
Directors’ Report 50
Independent Auditor’s Report 52
Consolidated statement of financial position 53
Consolidated income statement 54
Consolidated statement of changes in owners’ equity 55
Consolidated statement of cash flows 56
Consolidated statement of changes in restricted investment accounts 57
Notes to the Consolidated Financial Statements 58
48 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Report of the Sharia Supervisory Board on the activities of Ithmaar Bank B.S.C. (c) for the period ended at 13 Rabi Al-Akher 1439 H, corresponding
to 31 December 2017.
Praise be to Allah, the Lord of the worlds, and peace and blessings be upon our Master, Mohammed, the leader of Prophets and Messengers, and
upon his scion and companions, and upon those who follow his guidance until the Day of Judgment.
The Sharia Supervisory Board of Ithmaar Bank B.S.C. (c) (the Bank) performed the following during the financial period ended at 31 December 2017:
1. Issued fatwas and Sharia resolutions related to products and activities of the Bank and followed them up through Internal Sharia Compliance
Department while also guiding the different departments towards Sharia-compliant transactions.
2. Studied different mechanisms of financing, investing and different mudaraba investments and prepare its documents with the concerned
departments that develop and present products.
3. Examined the books, records and transactions through the Internal Sharia Compliance Department and auditing some of their samples as per
established sharia auditing standards.
4. Examined sources of income and expenditures through reviewing the consolidated statement of financial position, income statement and the
Bank’s overall banking activities.
5. Examined and approved periodic Sharia reports which are published by the Internal Sharia Compliance Department.
We have reviewed the principles and contracts relating to transactions and products launched by the Bank during the period ended at 31 December
2017. We have also conducted the required inspection to provide our opinion on whether the Bank had complied with the provisions and principles
of Islamic Sharia, as well as fatwas, resolutions and specific guidance that was issued by us.
The management is responsible for ensuring that the Bank operates in accordance with the provisions and principles of Islamic Sharia. Our
responsibility is to express an independent opinion based on our observation of Ithmaar’s operations, and prepare a report.
In view of the above the Sharia Supervisory Board hereby resolves as follows:
We pray to Almighty Allah to grant success to Ithmaar and whom are responsible and grant them success for everything He pleases. May peace and
blessings be upon our Master, Mohammed, and upon his scion and companions.
His Eminence Shaikh Mohsin Al-Asfoor His Eminence Shaikh Dr. Nizam Yacooby
Member Member
DIRECTORS’ REPORT
For the period ended 31 December 2017
The Directors submit their report dealing with the activities of Ithmaar Bank B.S.C. (C) (“the Bank”) for the period ended 31 December 2017, together
with the audited consolidated financial statements of the Bank and its subsidiaries (collectively the “Group”) for the period ended.
Principal activities
Ithmaar Bank B.S.C. (C) (the “Bank”) was incorporated in the Kingdom of Bahrain on 12 May 2016 as a Closed Joint Stock entity and registered with
the Ministry of Industry & Commerce under commercial registration number 99336-1 and was licensed as an Islamic retail bank by the Central Bank
of Bahrain (the “CBB”) on 14 August 2016. As part of reorganization of erstwhile Ithmaar Bank B.S.C (now Ithmaar Holding B.S.C.), the identified
assets & liabilities were transferred to the Bank on 2 January 2017.
The principal activities of the Bank and its subsidiaries (collectively the “Group”) are a wide range of financial services, including retail, commercial,
investment banking and private banking.
The Group has reported a net profit of BD1.6 million for the period ended 31 December 2017 attributable to the equity shareholders of the Group.
Total assets at 31 December 2017 amounted to BD3,242 million. This is the first year of the Bank’s operation as a new entity and hence no
comparative information is available.
The consolidated Capital adequacy ratio of the Bank under Basel III as at 31 December 2017 was 13.92% as compared to a minimum regulatory
requirement of 12.5%. The Group’s risk weighted exposures and eligible capital are set out in note 36 of the accompanying consolidated financial
statements.
Directors
The following served as Directors of the Bank during the period ended 31 December 2017:
HRH Prince Amr Mohamed Al Faisal (Chairman)
Mr. Abdel Hamid Abo Moussa
Sheikh Zamil Abdullah Al-Zamil
Mr. Nabeel Khalid Kanoo
Mr. Mohammed Bucheerei
Mr. Abdulellah Ebrahim Al-Qassimi
Mr. Omar Abdi Ali
Dr. Amani Khaled Bouresli
Mr. Abdulshakoor Hussain Tahlak
Mr. Mohammed Elkhereiji (Appointed with effect from 16 October 2017)
Tunku Yaacob Khyra (Resigned with effect from 11 January 2017)
Mr. Khalid Abdulla-Janahi (Resigned with effect from 11 June 2017)
Sheikha Hissah Bint Saad Al-Sabah (Resigned with effect from 20 August 2017)
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 51
Dividend
No dividend has been proposed for 2017.
Auditors
The auditors, PricewaterhouseCoopers ME Limited, have expressed their willingness to be reappointed as auditors of the Bank for the year ending
31 December 2018.
_______________________________
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with
the Auditing Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December
2017 and the results of its operations, its cash flows, changes in owners’ equity and changes in restricted investment accounts for the period then
ended in accordance with Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions.
(i) the Bank has maintained proper accounting records and the consolidated financial statements are in agreement therewith;
(ii) the financial information contained in the directors’ report is consistent with the consolidated financial statements;
(iii) we are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain and Financial Institutions Law, the
CBB Rule Book (Volume 2 and applicable provisions of Volume 6) and CBB directives, rules and procedures of the Bahrain Bourse or the terms
of the Bank’s memorandum and articles of association, having occurred during the period that might have had a material adverse effect on the
business of the Bank or on its financial position; and
(iv) satisfactory explanations and information have been provided to us by the management in response to all our requests.
The Bank has also complied with the Islamic Sharia rules and principles as determined by the Sharia Supervisory Board of the Group.
At 31 December 2017
Notes (Audited)
ASSETS
Cash and balances with banks and central banks 3 263,819
Commodity and other placements with banks, financial and other institutions 4 98,545
Murabaha and other financings 5 1,808,841
Musharaka financing 139,252
Sukuk and investment securities 6 617,156
Restricted investment accounts 7 27,183
Assets acquired for leasing 8 131,106
Investment in real estate 3,994
Other assets 9 69,150
Fixed assets 10 22,252
Intangible assets 11 61,121
Total assets 3,242,419
LIABILITIES, EQUITY OF UNRESTRICTED INVESTMENT ACCOUNTHOLDERS, MINORITY
INTEREST AND OWNERS’ EQUITY
Customers’ current accounts 12 676,888
Due to banks, financial and other institutions 13 434,635
Due to investors 14 719,303
Other liabilities 15 147,551
Total liabilities 1,978,377
Equity of unrestricted investment accountholders 16 1,064,898
Minority interest 17 44,541
Total liabilities, equity of unrestricted investment accountholders and minority interest 3,087,816
Share capital 18 100,000
Reserves 31,902
Retained earnings 22,701
Total owners’ equity 154,603
Total liabilities, equity of unrestricted investment accountholders, minority interest and
3,242,419
owners’ equity
These consolidated financial statements were approved by the Board of Directors on 27 February 2018 and signed on their behalf by:
HRH Prince Amr Mohamed Al Faisal Dr. Amani Khaled Bouresli Ahmed Abdul Rahim
Chairman Director CEO
The notes 1 to 38 on pages 58 to 88 form an integral part of the consolidated financial statements.
54 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Period ended
31 December
2017
Notes (Audited)
INCOME
Income from unrestricted investment accounts 62,190
Less: return to unrestricted investment accounts and impairment provisions (33,214)
Group’s share of income from unrestricted investment accounts as a Mudarib 28,976
Income from murabaha and other financings 21 60,915
Income from other investments 22 43,912
Other income 23 16,921
Total income 150,724
Less: profit paid to banks, financial and other institutions – net (61,525)
Operating income 89,199
EXPENSES
Administrative and general expenses 24 (61,023)
Depreciation and amortization 10,11 (9,145)
Total expenses (70,168)
Net income before provision for impairment and overseas taxation 19,031
Provision for impairment – net (3,010)
Net income before overseas taxation 16,021
Overseas taxation 27 (9,783)
NET PROFIT FOR THE PERIOD 6,238
Attributable to:
Equity holders of the Bank 1,582
Minority interests 17 4,656
6,238
Basic and diluted earnings per share 19 Fils 1.58
These consolidated financial statements were approved by the Board of Directors on 27 February 2018 and signed on their behalf by:
HRH Prince Amr Mohamed Al Faisal Dr. Amani Khaled Bouresli Ahmed Abdul Rahim
Chairman Director CEO
The notes 1 to 38 on pages 58 to 88 form an integral part of the consolidated financial statements.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 55
Reserves
Investments Investment in Foreign
Share Statutory fair value real estate fair currency Share Total Retained Total owners’
capital reserve reserve value reserve translation premium reserves earnings equity
The notes 1 to 38 on pages 58 to 88 form an integral part of the consolidated financial statements.
56 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Period ended
31 December
Notes 2017 (Audited)
OPERATING ACTIVITIES
Net income before overseas taxation 16,021
Adjustments for:
Depreciation and amortization 10,11 9,145
Provision for impairment – net 3,010
Gain on sale of fixed assets 23 (205)
Operating income before changes in operating assets and liabilities 27,971
(Increase)/decrease in balances with banks maturing after ninety days and including with
(3,489)
central banks relating to minimum reserve requirement
Changes in operating assets and liabilities:
Murabaha and other financings (689)
Musharaka financing (58,323)
Other assets (1,893)
Customers’ current accounts 65,389
Due to banks, financial and other institutions 15,094
Due to investors 39,176
Other liabilities 12,493
Increase in equity of unrestricted investment accountholders 33,260
INVESTING ACTIVITIES
Net (increase)/decrease:
Assets acquired for leasing (34,634)
Sukuk and investment securities (37,007)
Purchase of fixed assets (2,686)
Net cash used in investing activities (74,327)
Foreign currency translation adjustments (9,231)
Net increase in cash and cash equivalents 36,861
Cash and cash equivalents at the beginning of the period 260,993
Cash and cash equivalents at the end of the period 4 297,854
The notes 1 to 38 on pages 58 to 88 form an integral part of the consolidated financial statements.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 57
* Income/(loss) will be recognised and distributed at the time of disposal of the underlying investments
The notes 1 to 38 on pages 58 to 88 form an integral part of the consolidated financial statements.
58 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Ithmaar Bank B.S.C. (C) (the “Bank”) was incorporated in the Kingdom of Bahrain on 12 May 2016 as a Closed Joint Stock entity and registered with
the Ministry of Industry & Commerce under commercial registration number 99336-1 and was licensed as an Islamic retail bank by the Central Bank
of Bahrain (the “CBB”) on 14 August 2016.
Ithmaar Holding B.S.C.(formerly Ithmaar Bank B.S.C.) [“Ithmaar”], a Category 1 investment firm licensed and regulated by the Central Bank of Bahrain
(CBB) is the immediate parent company of the Bank. Dar Al-Maal Al-Islami Trust (“DMIT”), a Trust incorporated in the commonwealth of Bahamas
is the ultimate parent company of the Bank.
Pursuant to the reorganisation of Ithmaar at its Extraordinary General Meeting (EGM) held on 28 March 2016 where shareholders approved to
restructure Ithmaar Bank B.S.C. into a holding company and two subsidiaries to segregate core and non-core assets, the core assets and liabilities
of Ithmaar were transferred to the Bank along with control over the below mentioned subsidiaries on 2 January 2017. Since Ithmaar remained
the ultimate parent before and after this reorganization, this transaction has been accounted as a business combination under common control
and the related assets and liabilities have been transferred at their book values. No financial transactions were incurred by the Bank between the
date of incorporation 12 May 2016 and 1 January 2017. These financial statements cover the period from date of incorporation (12 May 2016) to
31 December 2017. This is the first period of the Company’s operation as a new entity and hence no comparative information is available.
Subsequent to reorganization, the transfer of the legal ownership of certain assets and liabilities from Ithmaar to the Bank are in progress.
The principal activities of the Bank and its subsidiaries (collectively the “Group”) are a wide range of financial services, including retail, commercial,
investment banking, private banking, takaful and real estate development.
The Bank’s activities are regulated by the CBB and are subject to the supervision of Shari’a Supervisory Board.
The Group’s activities also include acting as a Mudarib (manager, on a trustee basis), of funds deposited for investment in accordance with Islamic
laws and principles particularly with regard to the prohibition of receiving or paying interest. These funds are included in the consolidated financial
statements as equity of unrestricted investment accountholders and restricted investment accounts. In respect of equity of unrestricted investment
accountholders, the investment accountholder authorises the Group to invest the accountholders’ funds in a manner which the Group deems
appropriate without laying down any restrictions as to where, how and for what purpose the funds should be invested. In respect of restricted
investment accounts, the investment accountholders impose certain restrictions as to where, how and for what purpose the funds are to be
invested. Further, the Group may be restricted from commingling its own funds with the funds of restricted investment accounts.
The Group carries out its business activities through the Bank’s head office, 16 commercial branches in Bahrain and its following principal subsidiary
companies:
% Owned
Country of Principal
Voting Economic
Incorporation business activity
Faysal Bank Limited 67 67 Pakistan Banking
Sakana Holistic Housing Solutions B.S.C. (C) (Sakana)
63 50 Kingdom of Bahrain Mortgage finance
[under Voluntary Liquidation]
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 59
The consolidated financial statements of the Group are prepared under Financial Accounting Standards (FAS) issued by the Accounting and Auditing
Organisation for Islamic Financial Institutions (AAOIFI).
The Group has certain assets, liabilities and related income and expenses which are not Sharia compliant as these existed before Ithmaar converted
to an Islamic retail bank in April 2010. These are currently presented in accordance with AAOIFI standards in the consolidated financial statements
for the period ended 31 December 2017 as appropriate.
The Sharia Supervisory Board has approved the Sharia Compliance Plan (“Plan”) for assets and liabilities which are not Sharia Compliant. The Sharia
Supervisory Board is monitoring the implementation of this Plan. The income and expenses attributable to non-Sharia compliant assets and liabilities
is disclosed under note 38.
The consolidated financial statements comprise the financial information of the Group for the period ended 31 December 2017.
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below:
(i) New accounting standards: Issued but not yet effective
FAS 30 - Impairment, credit losses and onerous commitments
FAS 30 Impairment, credit losses and onerous commitments was issued in November 2017 replacing FAS 11 – ‘Provision and Reserves’. It
intends to define the accounting principles for impairment and credit losses (including expected credit losses) to be in line with ever-changing
global best practices, as well as, provisions needed against anticipated losses on onerous commitments. The effective date for adoption is
1 January 2020.
As per CBB circular dated 29 November 2017 (ref: EDBS/KH/C/57/2017) all Islamic Banks are required to implement the said standard with
effect from 1 January 2018.
Implementation of FAS 30 included significant judgements and assumptions on various matters which includes probability of default for financing
portfolios, loss given default, exposure at default for both funded and unfunded exposures, forward looking adjustments, staging guidelines,
movement between stages and low credit risk expedient.
The standard has significant impact on the consolidated financial statements of the Group and if adopted as of 1 January 2017, would result in
additional impairment provisions in the range of BD41 to BD49 million.
(ii) Basis of preparation
The consolidated financial statements are prepared on a historical cost convention except for investments carried at fair value through income
statement and equity and investment in real estate.
(iii) Statement of compliance
The consolidated financial statements have been prepared in accordance with the Financial Accounting Standards issued by the Accounting and
Auditing Organisation for Islamic Financial Institutions (AAOIFI), the Shari’a rules and principles as determined by the Shari’a Supervisory Board
of the Bank, the Bahrain Commercial Companies Law, the CBB and the Financial Institutional Law. In accordance with the requirement of AAOIFI,
for matters where no AAOIFI standards exist, the Group uses the relevant International Financial Reporting Standards (IFRS).
(iv) Summary of significant accounting policies
(a) Basis of consolidation
Subsidiaries
Subsidiaries are companies in which the Group holds 50% or more of equity shares and as such exercises significant control over such
companies. Subsidiaries, including Special Purpose entities that are controlled by the Bank, are consolidated from the date on which the Group
60 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
obtains control and continue to be so consolidated until the date such control ceases. For business combinations involving entities under
common control, the directors of the Group are responsible for determining a suitable accounting policy for such business combinations. The
directors have elected to use the uniting of interests method to account for business combinations involving entities under common control and
to account for such business combinations prospectively, under the predecessor basis of accounting. Under the uniting of interests method, there
is no requirement to fair value the assets and liabilities of the acquired entities and hence no goodwill arises on consolidation. The difference
between the cost of the acquisition and the Group’s share of the issued and paid up share capital of the acquired entity is recognised as share
premium in equity.
Associates
Associates are companies in which the Group has significant influence, but not control over the management of affairs, and which are neither
subsidiaries nor joint ventures. The Group’s investments in associates are accounted for under the equity method of accounting. Under the equity
method, the investment in the associate is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of
the associate. The consolidated income statement reflects the Group’s share of the results of operations of the associate. Where there has been
a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable,
in the consolidated statement of changes in owners equity.
In case of associates where audited financial statements are not available, the Group’s share of profit or loss is arrived at by using the latest
available management accounts.
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated
into the presentation currency as follows:
1. Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of statement of financial
position;
2. Income and expenses for each income statement are translated at average exchange rates; and
3. All resulting exchange differences are recognised as a separate component of equity.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 61
On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other
currency instruments designated as hedges of such investments, are taken to shareholders’ equity. Translation losses arising in the case of
severe devaluation or depreciation (other than temporary) of the currency of the net investment in a foreign operation when the latter is
translated at the spot exchange rate at the date of consolidated statement of financial position, are recognised in the first place as a charge
against any credit balance on the separate component of the shareholders equity and any remaining amount is recognised as a loss in the
consolidated income statement. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are
recognised in the consolidated income statement as part of the gain or loss on sale.
Goodwill, and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
1. Classification of investments
In the process of applying the Group’s accounting policies, management decides upon acquisition of an investment, whether it should be
classified as investments carried at fair value through income statement, held at amortised cost or investments carried at fair value through
equity. The classification of each investment reflects the management’s intention in relation to each investment and is subject to different
accounting treatments based on such classification.
4. Liquidity mismatch
The Group constantly monitors the liquidity mismatch arising in the normal course of the business. Periodic stress tests are carried out on
liquidity position to assess the ability of the Group to meet its liquidity mismatch. The stress testing also incorporates judgement based
behavioural approach for various sources of funding and estimated inflows from disposal of assets.
62 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Cash and cash equivalents as referred to in the consolidated statement of cash flows comprise cash on hand, non-restricted balance with central
banks and other banks, and short term liquid investments on demand or with an original maturity of three months or less.
The Group considers the promise made in Murabaha to the purchase orderer as obligatory.
Other financings represent conventional loans and advances, which are non-derivative financial assets with fixed or determinable payments.
These are initially recorded at fair value and are subsequently carried at amortised cost using the effective yield method.
The Group receives collateral in the form of cash or other securities including bank guarantees, mortgage over property or shares and securities
for Murabaha and other financings where deemed necessary. The Group’s policy is to obtain collateral where appropriate, with a market value
equal to or in excess of the principal amount financed under the respective financing agreement. To ensure that the market value of the
underlying collateral remains sufficient, collateral is valued periodically.
Specific provision is made when the management consider that there is impairment in the carrying amount of Murabaha and other financings.
In addition to specific provision, the Group also assesses impairment collectively for losses on financing facilities that are not individually
significant and where there is not yet objective evidence of individual impairment. General provision is evaluated at each reporting date.
Specific provision is made when the management consider that there is impairment in the carrying amount of Musharaka financing.
(g) Investments
Equity-type investments carried at fair value through equity are those equity instruments which are intended to be held for an indefinite
period of time, which may be sold in response to needs for liquidity; these are designated as such at inception. Regular-way purchases and
sales of these investments are recognised on the trade date which is the date on which the Group commits to purchase or sell the asset.
These investments are initially recognised at cost plus transaction costs. These investments are subsequently re-measured at fair value and
the resulting unrealised gains or losses are recognised in the consolidated statement of changes in equity under “Investments fair value
reserve”, until the financial asset is derecognized or impaired. At this time, the cumulative gain or loss previously recognised in equity is
recognised in the consolidated income statement.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 63
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is
impaired. In case of equity investments classified as financial assets carried at fair value through equity, a significant or prolonged decline in
fair value of the security below the cost is considered in determining whether the assets are impaired. If any evidence exists of significant
impairment for the investment carried at fair value through equity, the cumulative loss - measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on the financial asset previously recognised in the consolidated income statement
is removed from the equity and recognised in the consolidated income statement. Impairment losses on equity instruments previously
recognised in the consolidated income statement are not subsequently reversed through the consolidated income statement.
Assets acquired for leasing are stated at cost and are depreciated according to the Group’s depreciation policy for fixed assets or lease term,
whichever is lower.
A provision for doubtful receivable is made if, in the opinion of the management, the recovery of outstanding rentals are doubtful.
Fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated on the straight-line method to write off the cost of each
asset over its estimated useful life as follows:
Buildings 50 years
Leasehold improvements over the period of the lease
Furniture, equipment and motor vehicles 3-10 years
Depreciation is calculated separately for each significant part of an asset category. Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately to its recoverable amount. The asset’s residual value and useful life are reviewed,
and adjusted if appropriate, at each date of the statement of financial position.
Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. All other repairs and renewals
are charged to the consolidated income statement during the financial period in which they are incurred.
Gains and losses on disposal of fixed assets are determined by comparing proceeds with carrying amounts.
1. Goodwill
Goodwill acquired at the time of acquisitions of subsidiaries is reported in the consolidated statement of the financial position as an asset.
Goodwill is initially measured at cost being the excess of the cost of acquisition over the fair value of the Group’s share of the net assets
of the acquired subsidiary undertaking at the date of acquisition. Subsequently, the goodwill is tested for impairment on annual basis.
At the end of the financial period, the goodwill is reported in the consolidated statement of financial position at cost less any accumulated
impairment losses.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 65
1. Goodwill (continued)
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to the cash-
generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of
whether other assets or liabilities of the acquiree are assigned to those units or groups of units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the
recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.
Negative goodwill resulting from the acquisition of business is reported in the consolidated income statement.
Acquisition of minority interest is accounted using the Economic Entity Method. Under the Economic Entity Method, the purchase of a
minority interest is a transaction with a shareholder. As such, any excess consideration over the Group’s share of net assets is recorded in
owners’ equity.
2. Computer software
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
These costs are amortised on the basis of the expected useful lives (three to five years). Costs associated with developing or maintaining
computer software programs are recognised as an expense as incurred.
Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will
probably generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include software
development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets
are amortised using the straight line method over their expected useful lives.
3. Other acquired intangible assets
Other acquired intangible assets determined to have finite lives, such as core deposits and customer relationships, are amortised on a
straight line basis over their estimated useful lives of up to twenty years. The original carrying amount of core deposits and customer
relationships has been determined by independent appraisers, based on the profit rate differential on the expected deposit duration method.
Other acquired intangible assets are tested annually or more often if indicators exist for impairment and carried at cost less accumulated
amortization.
(k) Current taxation
There is no tax on corporate income in the Kingdom of Bahrain. However, the subsidiaries incorporated in tax jurisdictions pay tax as per local
regulations.
Deferred taxation is provided using the liability method for all temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
A deferred tax asset is recognised for all deductible temporary differences and carry forward of unused tax losses and tax credits to the extent
that it is probable that future taxable profit will be available against which the deductible temporary differences and unused tax losses and tax
credits can be utilised. Enacted tax rates are used to determine deferred income tax.
66 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Staff benefits and entitlements to annual leave, holiday air passage and other short-term benefits are recognised when they accrue to employees.
The Group’s contributions to defined contribution plans are charged to the consolidated income statement in the period to which they relate.
In respect of these plans, the Group has a legal and constructive obligation to pay the contributions as they fall due and no obligation exists to
pay future benefits.
In respect of end of service benefits, to which certain employees of the Group are eligible, costs are assessed in accordance with the labour law
requirements of the applicable jurisdiction.
For variable remuneration, a provision is recognised for the amount expected to be paid if the Group has a present legal or constructive
obligation to pay this amount as a result of past services provided by the employee and the obligation can be measured reliably.
Funds received from depositors who take the corporate risk of the Bank or its subsidiaries are classified as “Due to investors”
The assets included in the equity of unrestricted investment accountholders are measured on the same basis of various category of the assets
as set out above. The amount appropriated to investment risk reserve are out of the total income from URIA assets before charging any expense
relating to the management fee, mudarib share of profit, profit equalization reserve and profit to investment accountholders. Profit equalisation
reserve is created to maintain a certain level of return on investments for investment accountholders.
31 December 2017
Relating to unrestricted
Relating to owners Total
investment accounts
Cash reserve with central banks 63,686 824 64,510
Cash and balances with banks and central banks 173,386 25,923 199,309
237,072 26,747 263,819
4. COMMODITY AND OTHER PLACEMENTS WITH BANKS, FINANCIAL AND OTHER INSTITUTIONS
31 December 2017
Relating to unrestricted
Relating to owners Total
investment accounts
Cash and cash equivalents for the purpose of cash flow statement are as under:
31 December 2017
Relating to unrestricted
Relating to owners Total
investment accounts
Cash and balances with banks and central banks 237,072 26,747 263,819
Commodity and other placements with banks, financial and other institutions - net 98,545 - 98,545
Less: Placement maturing after ninety days - - -
Less: Balances with central bank relating to minimum reserve requirement (63,686) (824) (64,510)
271,931 25,923 297,854
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 69
Other financings represents conventional loans and advances totalling BD634.4 million made by a subsidiary of the Bank.
Sukuk and investment securities include conventional investments totalling BD528.7 million made by a subsidiary of the Bank.
The fair value of investment securities carried at amortised cost was BD491 million and these are tradable.
70 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
FAS 25 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs
reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market assumptions. These two types of inputs have created the
following fair value hierarchy:
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the investments, either directly (that is, as prices) or indirectly (that is, derived
from prices).
Level 3 – Inputs for the investments that are not based on observable market data (unobservable inputs).
This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible.
There was no movement between level 1 and level 2 during the period
Total gains for the period included in consolidated income statement for 31 December 2017 BD2.4 million.
The net book amount of assets acquired for leasing is further analysed as follows:
31 December 2017
Relating to owners 2,464
Relating to unrestricted investment accounts 128,642
131,106
9. OTHER ASSETS
31 December 2017
Relating to owners Relating to unrestricted Total
investment accounts
Account receivable 37,311 15,102 52,413
Due from related parties 3,916 - 3,916
Taxes – deferred 8,476 - 8,476
Taxes – current 10,338 - 10,338
Assets acquired against claims 6,514 - 6,514
66,555 15,102 81,657
Provision for impairment (7,887) (4,620) (12,507)
58,668 10,482 69,150
Depreciation charge for the period ended 31 December 2017 amounted to BD2.8 million.
72 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Amortisation charge for the period ended 31 December 2017 amounted to BD6.3 million.
The carrying amount of goodwill has been allocated to cash-generating units as follows:
31 December 2017
The recoverable amount of the cash-generating units were determined based on Value-in-Use (VIU) calculation using cash flow projections from
financial budgets approved by the Group’s senior management covering a three year period and Fair Value Less Cost to Sell (FVLCTS). The discount
rate applied to cash flow projections represent the cost of capital adjusted for an appropriate risk premium for these cash-generating units. The key
assumptions used in estimating the recoverable amounts of cash-generating units were assessed to ensure reasonableness of the VIU and FVLCTS
and resulting adjustment, if any, is recorded in the consolidated income statement.
Relating to unrestricted
Relating to owners Total
investment accounts
Due to banks, financial and other institutions include balances totalling BD162.9 million from two counterparties and having contractual maturity ranging to up to
one month.
Due to banks, financial and other institutions include conventional deposits totalling BD173.2 million, accepted by a subsidiary of the Bank.
Relating to unrestricted
Relating to owners Total
investment accounts
Accounts payable 85,293 40,149 125,442
Due to related parties 22,109 - 22,109
107,402 40,149 147,551
74 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
The assets attributable to unrestricted investment accountholders have been disclosed net of impairment provisions amounting to BD11.1 million.
Other liabilities include profit equalization reserve amounting to BD6.6 million and investment risk reserve amounting to BD6.8 million.
The average gross rate of return in respect of unrestricted investment accounts was 5% for 31 December 2017 of which 2.9% was distributed to
the investors and the balance was either set aside as provisions, management fees (up to 1.5% of the total invested amount per annum to cover
administration and other expenses related to the management of such funds) and/or retained by the Group as share of profits in its capacity as a
Mudarib.
The following table summarises the minority shareholders’ interests in the equity of consolidated subsidiaries
31 December 2017
Minority %
Minority interest in the consolidated income statement of BD4.7 million represents the minority shareholders’ share of the earnings of these subsidiaries for the
respective years
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 75
The Bank’s total issued and fully paid share capital at 31 December 2017 comprises 1,000,000,000 shares at 100 fils per share amounting to BD100,000,000.
The Chief Executive Officer owns one share. The share capital of the Bank is denominated in Bahraini Dinars.
The Bank grants shadow shares to employees calculated based on the net asset value of the Bank since the Bank is not listed. The number of shadow shares
granted to employees as of 31 December 2017 was 4.2 million of which the unvested shadow shares amount to 3.2 million.
Earnings per share on non-sharia compliant income and expenses is included under note 38.
Income from restricted investment accounts comprises profit participation as a Mudarib and investment management fees net of contribution made to certain
restricted funds.
The Group discharges its social responsibilities through donations to charitable causes and organizations.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 77
26. PROVISIONS
31 December 2017
Relating to unrestricted
Relating to owners Total
investment accounts
Total provisions of BD152 million includes BD6 million held as general provisions.
Period ended
31 December 2017
Current taxes 6,346
Deferred taxes 3,437
9,783
78 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
(i) Retail and Corporate banking, in which the Group receives customer funds and deposits and extends financing to its retail and corporate clients.
(ii) Trading Portfolio, where the Group trades in equity deals, foreign exchange and other transactions with the objective of realizing short-term gains.
(iii) Asset Management/Investment Banking, in which the Group directly participates in investment opportunities.
31 December 2017
The Group constitutes of two geographical segments which are Middle East & Africa, Asia and others.
31 December 2017
Net income/(loss) before provision and overseas taxation (13,913) 24,591 8,353 19,031
29. ZAKAH
Zakah is directly borne by the owners and investors in restricted and equity of unrestricted investment accountholders. The Bank does not collect or pay Zakah on
behalf of its owners and its investment accountholders.
Contingent liabilities
31 December 2017
Acceptances and endorsements 23,685
Guarantees and irrevocable letters of credit 261,777
Customer and other claims 117,547
403,009
Commitments
31 December 2017
Undrawn facilities, financing lines and other commitments to finance 680,981
80 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Assuming that all other variables held constant, the impact of currency risk on the consolidated income statement/equity based on reasonable shift
is summarized below:
The basis for calculation of the reasonable shift is arrived at by comparing the foreign exchange spot rate as at 31 December 2017 as compared to
the one year forward rate for the same period.
The currency exposure of the assets and liabilities, of the Group, including equity of unrestricted investment accountholders, is as follows:
Equity of unrestricted
170,273 132,854 - 761,556 215 - - 1,064,898
investment accountholders
Total liabilities and equity of unrestricted
357,952 1,425,138 180 983,000 139,190 124,002 13,813 3,043,275
investment accountholders
Contingent liabilities and commitments 234,451 706,248 25 89,545 32,516 2,331 18,874 1,083,990
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 81
3 months to
31 December 2017 Up to 1 month 1 to 3 months 1 to 5 years Over 5 years Total
1 year
Cash and balances with banks and central banks 241,202 22,617 - - - 263,819
Commodity and other placements with banks,
98,545 - - - - 98,545
financial and other institutions
Murabaha and other financings 176,545 226,407 174,931 942,172 288,786 1,808,841
Musharaka financing 2,473 3,404 8,848 67,936 56,591 139,252
Sukuk and investment securities 268,559 211,212 54,883 20,924 61,578 617,156
Restricted investment accounts - - - - 27,183 27,183
Assets acquired for leasing 1,278 198 2,877 3,109 123,644 131,106
Investment in real estate - - - - 3,994 3,994
Other assets 35,794 8,714 2,837 11,132 10,673 69,150
Fixed assets - - 230 4,645 17,377 22,252
Intangible assets - - 185 2,241 58,695 61,121
Total assets 824,396 472,552 244,791 1,052,159 648,521 3,242,419
Customer current accounts 676,888 - - - - 676,888
Due to banks, financial and other institutions 298,770 49,525 28,827 52,386 5,127 434,635
Due to investors 454,386 116,418 145,313 3,186 - 719,303
Other liabilities 93,729 23,154 7,630 23,038 - 147,551
Total liabilities 1,523,773 189,097 181,770 78,610 5,127 1,978,377
Equity of unrestricted investment accountholders 468,451 117,958 377,847 100,642 - 1,064,898
Total liabilities and equity of unrestricted
1,992,224 307,055 559,617 179,252 5,127 3,043,275
investment accountholders
Contingent liabilities and commitments 571,889 148,886 215,830 140,399 6,986 1,083,990
82 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Assets and liabilities of the Group, including equity of unrestricted investment accountholders, and letters of credit and guarantee are distributed over the
following industry sectors and geographical regions:
33. CONCENTRATION OF ASSETS, LIABILITIES AND LETTERS OF CREDIT AND GUARANTEE (continued)
Credit risk
The significant concentration of credit risk at 31 December 2017 is set out in note 33.
Non performing financing exposures are conservatively considered as financing exposures which have been past due beyond 90 days and the profit on these assets
is not recognized in the consolidated income statement. Following are the details of non performing financing exposures relating to the Group and its unrestricted
investment accountholders:
31 December 2017
Relating to unrestricted
Relating to owners Total
investment accounts
Gross exposure
Past due but performing financing exposures 196,062 50,812 246,874
Non performing financing exposures 123,146 58,630 181,776
319,208 109,442 428,650
Fair value of collateral
Past due but performing financing exposures 507,162 51,667 558,829
Non performing financing exposures 24,822 62,943 87,765
531,984 114,610 646,594
Included in the performing financing exposures of the Group are facilities which have been restructured during the period which are as follows:
31 December 2017
Relating to unrestricted
Relating to owners Total
investment accounts
The basis for calculation of the reasonable shift is arrived at by comparing the interbank lending rate at the beginning and the end of the period.
Price risk
The table below summarises the impact of increase/decrease of equity indices on the Group’s post tax profit for the period and on other components of equity.
The analysis is based on the assumptions that equity indices increased/decreased by 10% with all other variables held constant and all the Group’s equity instruments
moved according to the historical correlation with the indices:
(b) Major shareholders of the Bank, Ultimate Parent and companies in which Ultimate Parent has ownership interest and subsidiaries of such
companies (affiliates).
A related party transaction is a transfer of resources, services, or obligations between related parties, regardless of whether a price is charged.
31 December 2017
Associates Directors
Shareholders & Senior
and joint and related Total
Affiliates management
ventures entities
Income
Return to unrestricted investment accounts 303 293 7 - 603
Income from murabaha and other financings 9,185 - - - 9,185
Share of profit/(loss) after tax from associates - (217) - - (217)
Profit paid to banks, financial and
409 506 - - 915
other institutions – net
Other Income - Management fees (2,500) - - - (2,500)
Expenses
Administrative and general expenses 198 - 19 - 217
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 87
• To comply with the capital requirements set by the regulators of the banking markets where the entities within the Group operate;
• To safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and
The table below summarises the composition of regulatory capital and the ratios of the Group for the period ended. The capital adequacy ratio has been calculated
in accordance with CBB guidelines & CBB directives incorporating credit risk, operational risk and market risk. The minimum regulatory requirement is 12.5% under
Basel III.
31 December 2017
Tier 1 191,347
Tier 2 21,106
Total Capital Base 212,453
Total Risk-Weighted Exposures 1,526,186
Capital Adequacy Ratio 13.92%
The Board of Directors has not proposed any dividend for the period ended 31 December 2017.
88 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
The Group has earned certain income and incurred certain expenses from conventional assets and liabilities. These conventional assets and liabilities are in
accordance with the Sharia Compliance Plan. The details of the total income and total expenses are as follows:
Period ended
31 December 2017
INCOME
Income from other financings 49,873
Income from investments 43,739
Other income 11,312
Gross income 104,924
Less: profit paid to banks, financial and other institutions (net) - note (ii) (45,145)
Total income 59,779
EXPENSES
Administrative and general expenses - note (ii) (34,270)
Depreciation and amortisation (5,238)
Total expenses (39,508)
Net income before provision for impairment and overseas taxation 20,271
Provision for impairment (net) 1,098
Net income before overseas taxation 21,369
Overseas taxation (9,755)
NET INCOME FOR THE PERIOD 11,614
Attributable to:
Equity holders of the Bank 7,732
Minority interests 3,882
11,614
Basic and diluted earnings per share Fils 7.73
Note (i) – The share of profit attributable to non-sharia compliant associates is based on their accounting policies which are different from the Group accounting
policies. Since the non-sharia income is already disclosed separately and hence no adjustment is made on impact of dissimilar accounting policies.
Note (ii) – Expenses relate to entities which are consolidated line by line and exclude associates.
Note (iii) – One of the subsidiaries presently operating as a conventional bank has increased the number of its Islamic branches during the period to 197 out of total
404 branches.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 89
Public Disclosures
At 31 December 2017
Contents
1. Background 90
2. Basel III Framework 90
3. Capital management 90
4. Approaches adopted for determining regulatory capital requirements 91
5. Regulatory Capital components 91
6. Tier one capital ratios and Total capital ratios 93
7. Risk Management 93
8. Disclosure of the regulatory capital requirements for credit risk under
standardized approach 100
9. Gross credit exposures 100
10. Geographical distribution of credit exposures 101
11. Industrial distribution of credit exposures 101
12. Maturity breakdown of credit exposures 102
13. Related-party balances under credit exposure 102
14. Past due and impaired financings and related provisions for impairment 103
15. Past due and impaired financings by geographical areas 103
16. Details of credit facilities outstanding that have been restructured during the
period ended 31 December 2017 104
17. Credit exposures which are covered by eligible financial collateral 104
18. Market Risk 104
19. Disclosure of regulatory capital requirements for market risk under the
standardized approach 106
20. Currency risk 106
21. Equity position in Banking book 106
22. Profit Rate Risk in the Banking Book 107
23. Operational Risk 108
24. Disclosure of regulatory capital requirements for operational risk under the
basic indicator approach 109
25. Liquidity Risk 110
26. Legal contingencies and compliance 110
27. Displaced Commercial Risk 110
28. Gross income from Mudaraba and profit paid to Unrestricted Investment Accountholders 111
29. Average declared rate of return on General Mudaraba deposits 111
30. Movement in Profit Equalization Reserve and Provisions – URIA 112
31. Other disclosures 112
90 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
1. Background
The public disclosures under this section have been prepared in accordance with the Central Bank of Bahrain (CBB) requirements outlined in
its Public Disclosure Module (PD), CBB Rule Book, Volume II for Islamic Banks. The disclosures in this report are in addition to the disclosures
set out in Ithmaar Bank B.S.C (C)’s (Ithmaar Bank/ Group) consolidated financial statements for the period ended 31 December 2017,
presented in accordance with Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation for Islamic Financial
Institutions (AAOIFI).
3. Capital management
Ithmaar Bank’s capital management policy provides guidelines to ensure that it meets the capital requirements as mandated by the CBB and
is able to estimate an appropriate capital level in order to support its business growth. Capital management also ensures that shareholders’
value is protected and enhanced.
Regulatory capital is the minimum capital that is required by regulatory authority, to be maintained by Ithmaar Bank commensurate to the
underlying risks. Ithmaar Bank has adopted the capital charge computations and adequacy ratios as per Basel III guidelines, and CBB Capital
Adequacy regulations & directives.
Capital management is a coordinated effort by the Business, Risk Management, and Financial Control departments and is a part of a broader
Internal Capital Adequacy Assessment Process (ICAAP). ICAAP covers the capital charge for all material risks in Pillar 1 and Pillar 2. ICAAP
also recommends an internal capital adequacy ratio target over and above the regulatory requirement to absorb any un-expected losses
arising due to Pillar 2 risks. The adequacy and sufficiency of capital ratio is also tested with a mechanism of stress scenario across various risk
dimensions on a periodical basis. A comprehensive risk assessment of the Business and Budget Plans is independently performed by the Risk
Management Department (RMD), which among others, assesses the capital requirement of Ithmaar Bank supporting both current and future
activities. Ithmaar Bank’s capital position is monitored on a regular basis and reported to the Asset Liability Management Committee (ALCO),
the Audit, Governance and Risk Management Committee (AGRMC) and the Board of Directors.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 91
Principal
Total Total Country of business Regulatory
Name assets Equity Ownership Incorporation activity Treatment
Faysal Bank Limited 1,648,724 117,917 67% Pakistan Banking Aggregation
Sakana Holistic Housing Solutions B.S.C. (C) (Sakana) * 3,254 3,074 50% Kingdom Mortgage Line by line
of Bahrain finance consolidation
* Under voluntary liquidation.
The reconciliation from published financial information to regulatory return is as follows:
Cash and balances with banks and central banks 263,819 263,819
Commodity and other placements with banks, financial and other institutions 98,545 98,545
Murabaha and other financings 1,808,841 1,808,841
Musharaka financing 139,252 139,252
Sukuk and investment securities 617,156 617,156
Restricted investment accounts 27,183 27,183
Assets acquired for leasing 131,106 131,106
Investment in real estate 3,994 3,994
Other assets 69,150 69,150
Fixed assets 22,252 22,252
Intangible assets 61,121 61,121
General Provision - 6,005
Aggregation - 51,845
Total Assets 3,242,419 3,300,269
7. Risk Management
7.1 Risk Management Objectives
Risk is an integral part of Ithmaar Bank’s business and managing it is critical to Ithmaar’s continuing success and profitability. The essence of
effective risk management is to enhance shareholders’ and Investment Account Holders’ value through business profits commensurate with
the risk appetite of Ithmaar Bank and seeks to minimize the potential adverse effects on its financial performance. Ithmaar Bank has over the
years, developed risk management into a core competency and remains well positioned to meet imminent challenges. Risk Management at
Ithmaar has always been prudent and proactive with the objective of achieving the optimum balance between risk and expected returns.
Ithmaar Bank has adopted an integrated risk management framework to proactively identify, assess, manage and monitor risks in its
decisions and operations. The Bank’s risk management framework is based on guidelines issued by the Central Bank of Bahrain (CBB), sound
principles of risk management issued by Bank of International Settlements and international best practices, and Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI) wherever applicable.
94 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
7.4.5.2 Guarantees
Guarantees are taken from individuals and Corporates. In cases where a letter of guarantee from the counterparty’s parent company or
from a third party is offered as credit risk mitigant, it is ensured that the guarantees must be irrevocable and unconditional, If the guarantor
is located outside Bahrain, legal opinion is obtained from a legal counsel domiciled in the country of guarantor (overseas) regarding the
enforceability of the guarantee, further the financial position of the guarantor is adequately analyzed to determine the value and commercial
viability of the guarantee.
98 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
Declarations of Interest:
On taking office, Members of the Board of Directors of the Bank are required to disclose all interests and relationships which could or might
be seen to affect their ability to perform their duties as a Member of the Board of Directors. Any such interests declared shall be recorded in
the Board of Director’s Register of Interests, which are maintained by the shareholders affairs unit. This declaration of interest is updated on
an annual basis.
8. Disclosure of the regulatory capital requirements for credit risk under standardized approach:
Exposure funded by Self Finance
Risk weighted Capital
assets requirement
Claims on sovereign 9,583 1,198
Claims on banks 36,696 4,587
Claims on corporate portfolio 352,217 44,027
Investments in equity securities 631 79
Holding of real estate 24,403 3,050
Regulatory retail portfolio 630 79
Past due facilities 12,469 1,559
Other assets 3,131 391
Aggregation 794,586 99,323
Total 1,234,346 154,293
Credit risk exposure relating to off balance sheet items are as follows:
Financial guarantees and irrevocable letters of credit, acceptance and endorsements 285,462 285,462
Financing commitments, Undrawn facilities and other credit related liabilities 798,528 798,528
Total off balance sheet credit exposure 1,083,990 1,083,990
Total credit exposure 4,326,409 4,326,409
Total credit exposure financed by URIA 1,227,987 1,227,987
Total credit exposure financed by URIA (%) 28.38% 28.38%
Average gross credit exposures have been taken as outstanding as of 31 December 2017 since this is the first period of the Bank.
Exposures amounting to BD2.6 million are covered by guarantee.
ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017 101
The Group uses the geographical location of the credit exposures as the basis to allocate to the respective geographical region as shown above.
14. Past due and impaired financings and related provisions for impairment:
Gross Impairment Net
exposure provisions exposure
Analysis by industry
Manufacturing 70,526 62,693 7,833
Agriculture 5,351 3,122 2,229
Construction 25,353 3,664 21,689
Finance 3,631 705 2,926
Trade 39,262 30,244 9,018
Personal 23,506 5,774 17,732
Real estate 11,510 7,621 3,889
Other sectors 2,637 1,110 1,527
Total 181,776 114,933 66,843
Ageing analysis
Over 3 months up to 1 year 9,352 1,108 8,244
Over 1 year up to 3 years 6,887 1,275 5,612
Over 3 years 165,537 112,550 52,987
Total 181,776 114,933 66,843
Relating to
unrestricted
Relating to investment
Details of impairment provisions at 31 December 2017 owners accounts Total
Specific impairment provisions 107,399 7,534 114,933
General impairment provisions 4,714 - 4,714
Details of impairment provision charge and write back for the period.
Charge for the period 9,620 - 9,620
Write back during the period (7,294) - (7,294)
16. Details of credit facilities outstanding that have been restructured during the period ended 31 December 2017:
Restructured financings during the period ended 31 December 2017 aggregated to BD16.6 million. This restructuring had an impact of
BD0.6 million on present earnings during the period ended 31 December 2017. Further, this restructuring is expected to have positive impact
of BD1 million on the Group’s future earnings. Extension of maturity dates was the basic nature of concessions given to all the restructured
facilities.
Eligible
Gross Financial
Exposure Collateral
Corporate portfolio 414,960 67,825
Regulatory retail portfolio 920 80
Past due financings 11,382 1,816
Total 427,262 69,721
Eligible
Gross Financial
Exposure Collateral
Corporate portfolio 437,015 27,024
Regulatory Retail Portfolio 479,323 38
Past due financings 43,094 4,789
Total 959,432 31,851
19. Disclosure of regulatory capital requirements for market risk under the standardized approach:
Risk weighted assets Capital requirement
31 December Maximum Minimum 31 December Maximum Minimum
2017 Value Value 2017 Value Value
Foreign exchange risk 2,455 67,744 533 307 8,468 67
Aggregation
Foreign exchange risk 552 5,212 232 69 652 29
Profit Rate Risk (Trading Book) 12,325 32,326 24,715 1,541 4,041 3,089
Equity Position Risk 25,947 9,121 8,458 3,243 1,140 1,057
Total 41,279 114,403 33,938 5,160 14,300 4,242
24. Disclosure of regulatory capital requirements for operational risk under the basic indicator approach:
For regulatory reporting, the capital requirement for operational risk is calculated based on basic indicator approach. According to this
approach, the Bank’s average gross income over the preceding three financial years is multiplied by a fixed alpha coefficient.
The alpha coefficient has been set at 15% under CBB Basel III guidelines. The capital requirement for operational risk at 31 December 2017
aggregated to BD 19.8 million.
110 ITHMAAR BANK B.S.C. (c) ANNUAL REPORT 2017
28. Gross income from Mudaraba and profit paid to Unrestricted Investment Accountholders:
Percentage to Total 31 December
URIA assets 2017
Income from unrestricted investment accounts 5.1% 62,190
Less: return to unrestricted investment accounts -2.7% (33,214)
Group’s share of income from unrestricted investment accounts as a Mudarib 2.4% 28,976
For the period ended 31 December 2017 the return generated from unrestricted investment accountholders based on the average balance
outstanding during the period stood at 5%. The return paid to unrestricted investment accountholders based on the average balance
outstanding during the period at 2.9%.
At 31 December 2017, the ratio of profit equalization reserve, investment risk reserve and provisions against equity of unrestricted
investment accountholders stood at 0.6%, 0.6% and 1% respectively.
31 December 2017, the ratio of financings to URIA stood at 77%.
31 December 2017, the percentage of each type of Islamic financing to total URIA financing was as follows:
Percentage Financing
to Total URIA Financing
Murabaha and other financings 67.80%
Musharaka financing 16.51%
Assets acquired for leasing 15.69%
The following table summarizes the breakdown of URIA and impairment provisions
31 December 2017
Exposure : Banks 306,840
Exposure : Non-Banks 921,147
Provisions : Non-Banks 11,094
CORPORATE INFORMATION
Legal Form: Ithmaar Bank B.S.C. (Closed) is a Bahrain-based Islamic retail bank that is licensed and regulated by the
Central Bank of Bahrain and provides retail, commercial, treasury and financial institutions, and other
banking services.
Registered Office: Seef Tower, Building 2080, Road 2825, Al Seef District 428, P.O.Box 2820, Manama, Kingdom of Bahrain
Email: info@ithmaarbank.com
Website: www.ithmaarbank.com
Company Secretary: Dana Aqeel Raees – Head, Legal Department and Company Secretary